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Rent sharing before and after the wage bill

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  • Pedro Martins

Abstract

Many biases plague the analysis of whether employers share rents with their employees, unlike what is predicted by the competitive labour market model. Using a Portuguese matched employer-employee panel, this article is one of the first to address these biases in three complementary ways: (1) Controlling directly for the fact that firms that share more rents will, ceteris paribus, have lower net-of-wages profits. (2) Instrumenting profits via interactions between the exchange rate and the share of exports in firm's total sales. (3) Considering firm or firm/worker spell fixed effects and highlighting the role of downward wage rigidity. These approaches clarify conflicting findings in the literature and result, in our preferred specifications, in significant evidence of rent sharing (a Lester range of pay dispersion of 56%), also shown to be robust to a number of competitive interpretations.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840701736164
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 17 ()
Pages: 2133-2151

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Handle: RePEc:taf:applec:v:41:y:2009:i:17:p:2133-2151

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  1. Paul Oyer, 2004. "Why Do Firms Use Incentives That Have No Incentive Effects?," Journal of Finance, American Finance Association, vol. 59(4), pages 1619-1650, 08.
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  3. F. Fakhfakh & F. Fitzroy, 2003. "Basic Wages and Firm Characteristics : Rent-sharing in French Manufacturing," Working Papers ERMES 0311, ERMES, University Paris 2.
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  10. Hartog, Joop & Pereira, Pedro T. & Vieira, José A. Cabral, 1999. "Inter-industry Wage Dispersion in Portugal: high but falling," IZA Discussion Papers 53, Institute for the Study of Labor (IZA).
  11. Arai, Mahmood & Heyman, Fredrik, 2001. "Wages, Profits and Individual Unemployment Risk : Evidence from Matched Worker-Firm Data," Working Paper Series 172, Trade Union Institute for Economic Research.
  12. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High Wage Workers and High Wage Firms," NBER Working Papers 4917, National Bureau of Economic Research, Inc.
  13. Nekby, Lena, 2003. "Gender differences in rent sharing and its implications for the gender wage gap, evidence from Sweden," Economics Letters, Elsevier, vol. 81(3), pages 403-410, December.
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  16. Sandra E. Black & Philip E. Strahan, 2001. "The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry," American Economic Review, American Economic Association, vol. 91(4), pages 814-831, September.
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  24. repec:fth:inseep:2001-16 is not listed on IDEAS
  25. Richard A. Lester, 1952. "A range theory of wage differentials," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 5(4), pages 483-500, July.
  26. Oswald, Andrew, 1996. "Rent-Sharing in the Labor Market," The Warwick Economics Research Paper Series (TWERPS) 474, University of Warwick, Department of Economics.
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  1. Some economics of payroll taxes
    by Pedro S. Martins in The Portuguese Economy on 2011-05-16 14:54:00
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