Persistent wage differential and its implications on the Balassa-Samuelson hypothesis

The objective of the study is to empirically examine the wage equalization assumption in the Balassa-Samuelson (BS) hypothesis. The wage equalization between the traded and the non-traded sectors is tested primarily based on resampling methods, permutation tests. The results show that the assumption does not hold uniformly. This study argues that a more general condition, which allows for wage differential between the sectors, can be used in the BS hypothesis as long as the wage differential is persistent. The persistent wage differential condition is empirically supported in this study.