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Microdata evidence on rent-sharing

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  • Mahmood Arai
  • Fredrik Heyman

Abstract

We examine the effect of firm profits on wages for individual workers while focusing on the empirical complications associated with estimating the extent of rent-sharing. Controlling for worker and firm fixed-effects and using several instruments to deal with the endogeneity of profits, we report results indicating that Ordinary Least Square (OLS)-estimates strongly underestimate the effects of profits on wages. Moreover, the effect of profits on wages are estimated separately for firms with increasing and decreasing profits within a given time period. We find a positive and stable effect only in firms with increasing profits. This is in line with the idea that falling profits do not lead to wage cuts while increasing profits imply higher wages.

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Bibliographic Info

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

Volume (Year): 41 (2009)
Issue (Month): 23 ()
Pages: 2965-2976

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Handle: RePEc:taf:applec:v:41:y:2009:i:23:p:2965-2976

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References

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  1. Agell, Jonas & Lundborg, Per, 1999. "Survey Evidence on Wage Rigidity: Sweden in the 1990s," Working Paper Series 154, Trade Union Institute for Economic Research.
  2. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 576-95, September.
  3. Marcello Estevao & Stacey Tevlin, 2003. "Do Firms Share their Success with Workers? The Response of Wages to Product Market Conditions," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 70(280), pages 597-617, November.
  4. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  5. Gibbons, Robert & Katz, Lawrence F, 1992. "Does Unmeasured Ability Explain Inter-industry Wage Differentials?," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 515-35, July.
  6. Manning, Alan, 1994. "How Robust Is the Microeconomic Theory of the Trade Union?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 12(3), pages 430-59, July.
  7. Holmlund, Bertil & Zetterberg, Johnny, 1991. "Insider effects in wage determination : Evidence from five countries," European Economic Review, Elsevier, vol. 35(5), pages 1009-1034, July.
  8. Nekby, Lena, 2002. "Gender Differences in Rent Sharing and its Implications for the Gender Wage Gap," Working Paper Series 182, Trade Union Institute for Economic Research.
  9. Margolis, D.N. & Salvanes, K.G., 2001. "Do Firms Really Share Rents with Their Workers?," Papers 11/2001, Norwegian School of Economics and Business Administration-.
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Cited by:
  1. Carlsson, Mikael & Messina, Julián & Nordström Skans, Oskar, 2011. "Wage Adjustment and Productivity Shocks," Working Paper Series 253, Sveriges Riksbank (Central Bank of Sweden).
  2. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 84-111.
  3. Jože P. Damijan & Luca Marcolin, 2013. "Global firms and wages: is there a rent sharing channel?," Working Papers 164, European Bank for Reconstruction and Development, Office of the Chief Economist.
  4. Kuhn, Johan Moritz, 2007. "My Pay is Too Bad (I Quit). Your Pay is Too Good (You're Fired)," Working Papers 07-5, University of Aarhus, Aarhus School of Business, Department of Economics.
  5. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.
  6. Lundborg, Per, 2005. "Wage Theories for the Swedish Labour Market," Working Paper Series 207, Trade Union Institute for Economic Research.

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