Regional wage differentials: static and dynamic approaches

This work aims at studying regional wage differentials both in a static and in a dynamic perspective. Previous studies have typically studied this issue using the Blinder and Oaxaca static decomposition. This approach does not provide clear information about the sources explaining the change in regional wage differentials along the years. To overcome this problem this study also uses Junh, Murphy and Pierce (1991,1993) decomposition. We analyse the case of Portugal for 1995 and 2002. Our results show that, although there are small changes in the interregional wage inequality, particularly between the region of Lisboa and the other regions, there are important and counteracting factors shaping this outcome. In fact, Lisboa has reinforced its position as the region with more qualified workers, but the gap in unobserved characteristics has decreased.