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Do Firms Share their Success with Workers? The Response of Wages to Product Market Conditions

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  • Marcello Estevao
  • Stacey Tevlin

Abstract

We provide new evidence that industry financial conditions help determine wages in the US manufacturing sector. Ordinary least squares estimates of the effect of rents per worker on wages are significantly positive, but quite small. We show that this may stem from econometric difficulties that plague the OLS estimates. Using the US input-output tables to isolate demand shocks, we overcome these issues and identify the effects of the industry financial situation on wages. Our IV estimates reveal substantial rent sharing-much more than is consistent with a purely competitive labour market. Copyright (c) The London School of Economics and Political Science 2003.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 70 (2003)
Issue (Month): 280 (November)
Pages: 597-617

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Handle: RePEc:bla:econom:v:70:y:2003:i:280:p:597-617

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References

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  1. Nickell, Stephen & Kong, Paul, 1992. "An investigation into the power of insiders in wage determination," European Economic Review, Elsevier, vol. 36(8), pages 1573-1599, December.
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  7. Hildreth, Andrew K G & Oswald, Andrew J, 1997. "Rent-Sharing and Wages: Evidence from Company and Establishment Panels," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 318-37, April.
  8. Kevin Denny & Machin, S, 1991. "The role of profitability and industrial wages in firm level wage determination," Fiscal Studies, Institute for Fiscal Studies, vol. 12(2), pages 34-45, May.
  9. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May.
  10. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
  11. Van Reenen, John, 1996. "The Creation and Capture of Rents: Wages and Innovation in a Panel of U.K. Companies," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 195-226, February.
  12. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  13. L Christofides & A Oswald, 1991. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," CEP Discussion Papers dp0042, Centre for Economic Performance, LSE.
  14. Joshua Angrist & Alan Krueger, 1993. "Split Sample Instrumental Variables," Working Papers 699, Princeton University, Department of Economics, Industrial Relations Section..
  15. Shea, John, 1993. "The Input-Output Approach to Instrument Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 145-55, April.
  16. Marcello Estevao & Stacey Tevlin, 1995. "The role of profits in wage determination: evidence from US manufacturing," Finance and Economics Discussion Series 95-48, Board of Governors of the Federal Reserve System (U.S.).
  17. Angrist, Joshua D & Krueger, Alan B, 1995. "Split-Sample Instrumental Variables Estimates of the Return to Schooling," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 225-35, April.
  18. John M. Abowd, 1990. "The NBER Immigration, Trade, and Labor Markets Data Files," NBER Working Papers 3351, National Bureau of Economic Research, Inc.
  19. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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Citations

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Cited by:
  1. Natália P. Monteiro & Miguel Portela, 2011. "Rent Sharing In Portuguese Banking," Manchester School, University of Manchester, vol. 79(4), pages 861-883, 07.
  2. Pedro S. Martins, 2008. "Rent Sharing Before and After the Wage Bill," Working Papers 12, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  3. Maritza López-Novella & Salimata Sissoko, 2009. "Working Paper 12-09 - Salaires et négociation collective en Belgique : une analyse microéconomique en panel," Working Papers 0912, Federal Planning Bureau, Belgium.
  4. Natália P. Monteiro & Miguel Portela & Odd Rune Straume, 2010. "Firm ownership and rent sharing," NIPE Working Papers 13/2010, NIPE - Universidade do Minho.
  5. Martins, Pedro S. & Esteves, Luiz A., 2006. "Is There Rent Sharing in Developing Countries? Matched-Panel Evidence from Brazil," IZA Discussion Papers 2317, Institute for the Study of Labor (IZA).
  6. Pistoresi, Barbara & Strozzi, Chiara, 2001. "Rent Sharing in Wage Determination: Evidence from Italy," CEPR Discussion Papers 2939, C.E.P.R. Discussion Papers.
  7. Kuckulenz, Anja, 2006. "Wage and Productivity Effect of Continuing Training in Germany: A Sectoral Analysis," ZEW Discussion Papers 06-25, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Majumdar, Sumit K., 2010. "Institutional changes, firm size and wages in the telecommunications sector," Information Economics and Policy, Elsevier, vol. 22(3), pages 201-217, July.
  9. Arai, Mahmood & Heyman, Fredrik, 2004. "Microdata Evidence on Rent-Sharing," Working Paper Series 198, Trade Union Institute for Economic Research.
  10. Sethupathy, Guru, 2013. "Offshoring, wages, and employment: Theory and evidence," European Economic Review, Elsevier, vol. 62(C), pages 73-97.
  11. Anja Kuckulenz, 2006. "Wage and Productivity Effect of Continuing Training in Germany : A Sectoral Analysis," Working Papers of the Research Group Heterogenous Labor 06-06, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  12. Maritza López Novella & Salimata Sissoko, 2013. "Understanding wage determination in a multi-level bargaining system: a panel data analysis," Empirical Economics, Springer, vol. 44(2), pages 879-897, April.
  13. Barbara Pistoresi & Chiara Strozzi, 2003. "Rent Sharing and Bargaining Levels: Evidence from Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 62(2), pages 145-170, October.

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