Do Employers Provide Insurance against Low Frequency Shocks? Industry Employment and Industry Wages
Paul J. Devereux
I use panel data to examine whether long-term changes in industry wages are positively related to long-term changes in industry employment. Previous research using repeated cross-sectional data found no systematic relationship between these variables. Using standard fixed effects models to deal with individual heterogeneity, I find a robust positive relationship between changes in composition-constant industry wages and industry employment. This suggests that growing industries attract less skilled individuals in a manner that biases down the estimated relationship between industry employment and wages in repeated cross-sectional data. The results imply that supply curves facing industries are elastic but upward sloping.
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