Trade Adjustment Costs in Developing Countries: - World Bank ...

Trade Reform, Employment Allocation and Worker Flows 137APPENDIX C WAGE STRUCTURE IN MANUFACTURINGTable C7.1 presents Mincer (1974) regressions of the log wage on individualcompensation components. Following Abowd et al. (2001), individualcompensation in a given year is given by1nw i = x i +ψ J(i) +ε i ,(C1)where w i is worker i’s annual wage, x i is a vector of observable workercharacteristics including gender, experience, education and occupation, β is avector of parameters to be estimated, ψ J(i) is an plant effect (j=J(i) being the plantthat employs worker i), and ε i is an error term. The plant effect combines a pureplant effect with the plant average of pure worker effects:ψ j = φ j +α _ j,(C.2)where φ j is the pure plant effect and α _ j is the average of pure worker effects α i overworkers employed at plant j. The plant effect controls for unobservable workerand plant characteristics. Abowd and Kramarz (1999) show that omitting thiseffect leads to bias in the estimation of β in general.Regressors are potential worker experience and indicator variables for gender,education, and occupation as measures of individual characteristics. Quadratic,cubic, and quartic terms for potential experience are included. Gender isinteracted with all other variables. Table C7.1 presents results for themanufacturing sector in São Paulo state in 1990 and 1997. Comparable estimatesfor manufacturing workers in France in 1992 and the United States in 1990 drawnfrom Abowd et al. (2001) are also reported. 1717 Data for France derive from the Enquête sur la Structure des Salaires (ESS), which samples responsesto an annual administrative census of business enterprises. Data for the United States derivefrom the Worker–Establishment Characteristic Database (WECD), which links individual census responsesto manufacturing plants surveyed in the Longitudinal Business Database (LBD). See Abowdet al. (2001) for further details.