Abstract:

An empirical puzzle about the direction of sectoral wage differentials

is documented in this study. Data on tradable- and nontradable-goods

sectors come from three East Asian countries (Japan, Korea, and Taiwan)

and seven OECD countries. Considerable structural differences in these

countries' wage rates have persisted in these sectors from 1970 to 1997.

Contrary to conventional wisdom, this study found that: (1) the wage

rates in these sectors are not equal in most countries; (2) the wage

rate is lower in the tradable than the nontradable sector for some

countries, especially most of the East Asian countries studied.

Special focus is on the empirically puzzling finding that the direction

of East Asian countries' wage differentials is exactly opposite to

that of advanced countries. A second major empirical finding is

that the Balassa-Samuelson hypothesis is still testable as long

as the growth rates of wages are statistically identical in both

the tradable and nontradable sectors. This study also discusses

the tradability issue and presents simple criteria for

distinguishing tradable and nontradable sectors in empirical

studies.