Interprovincial Wage Differences in Spain. A Microdata Analysis

Interregional wage differences in the Spanish economy are of considerable magnitude. More precisely the average wage in Madrid is 69% higher than in Murcia and the figure to Catalonia is 47% higher. The main objective of this paper is to explain these differences. In order to do so, we estimate enlarged Mincer equations and study the quantitative importance of the "territorial effect" on wages. Then we attempt to explain these as compensatory differences or as a result of existent disequilibrium in the provincial labour markets. The evidence obtained allows us to determine the magnitude of the "territorial effect". Once the influence of the individual and job characteristics are controlled for, there still remain positive differences slightly greater than 24% between the provinces of Barcelona and Seville and about 13% between Madrid and Seville. These wage differences are compensationg to some extent for differences in the levels of prices, but they do not correspond to the unequal attraction of the Spanish provinces. The differences are explained, finally, by the unequal level of prices and by the irregular distribution of unemployment between provinces, which is shown to have a negative effect on wages close to the magnitude estimated by Blanchflower and Oswald (1994).