Industry Premium: What we Know and What The New Zealand Data Say

Abstract

This paper critically reviews conventional explanations of why the individual income reflects an industry premium. It presents four facts about industry premiums in New Zealand to highlight the limitation of those explanations. In particular, it suggests that competitive theories that refer to unobservable characteristics or compensating wage differentials are too broad and non-competitive theories that rely on the efficiency wage hypothesis are too narrow to successfully explain what the New Zealand data reveal. Employees receive industry premium, but so do the self-employed, and do so more than the employees if uneducated; but the premium difference falls as the education level rises.