The Importance of Regional Factors in the Determination of Earnings: The Case of Austria

Abstract

This paper investigates interregional differences in earnings functions in Austria, in particular, the neoclassical hypothesis that regional earnings differentials can be eliminated by correcting for productivity-related characteristics. The results lead to a rejection of this hypothesis and show that earnings differentials are brought about by structural differences in the earnings functions rather than simple scale effects. The interregional earnings differences are mainly due to a different lifetime pattern of earnings and a different relationship between occupational status and earnings. As compared to other explanatory variables, the region contributes least to the explanation of earnings, although the effect is highly significant.

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