This article builds a simple model of worker sorting and matchspecific productivity to explain interindustry wage differentials. High‐skilled workers sort themselves into the industries offering more jobs that are better matched to them, and those industries pay higher wages (on average). In job transition following an exogenous job separation, the likelihood of industry switching is higher among marginal workers—low‐(high‐) skilled workers in high‐(low‐) wage industry. Empirical findings from a sample of exogenous job separations created from the Displaced Worker Surveys are generally consistent with the implications of the model.

This article examines whether increases in female labor supply contributed to rising wage inequality and declining real wages of less skilled males during the 1980s. While male wage declines are concentrated in the 1980s, female labor supply growth slowed in the 1980s relative to the 1970s. Women also increased the relative supply of skill in the economy in the 1980s. Using state‐level data we estimate cross‐substitution effects between men and women. Once we account for demand changes we find little evidence that women substitute for men or that they contributed to the rapid inequality growth in the 1980s.