Industry Composition Changes and Wages

In this paper I use longitudinal data to study the effects of changes in industrial composition on wages during the 1970s and 1980s. I find that over ten year periods, workers who are initially in industries that subsequently expand have faster wage growth. Also, wage growth is strongly related to employment changes in industries the individual is likely to move to. These effects are larger during the 1980s than earlier in the sample period. I use the estimates to evaluate the role played by industrial composition changes in affecting relative wages during the 1980s. I find that changes in industrial composition can account for all of the increase in the wages of women relative to men and about 40-50 percent of the increase in the relative wage of more educated groups. These estimates are larger than estimates in the literature derived from analysis of repeated cross sections. ∗ I thank Janet Currie, Joe Hotz, Guido Imbens, and Kanika Kapur for helpful conversations.