The Neoclassical Determinants of Real Wage

This paper presents empirical evidence that the neoclassical explanation of real wage has a high explanatory power at macro level. The factor endowments explanation of the real wage is surprisingly rare in the literature, at least at empirical level. In this paper, using panel data from 26 OECD countries, we show that the factor endowments-technology, physical capital stock and labor stock- have a significant explanatory power on the determination of the real wage. Based on our findings, we speculate that the supply-side rather than the demand-side variables may be the major source of the wage differences across countries.