The microeconomic forces that influence real wages are not fully understood. This paper studies pay determination using data on approximately 600 labour contracts. It finds that the real wage is an increasing function of past profitability in the employer's industry, and a decreasing function of the level of unemployment in the employer's region. These results are consistent with rent-sharing theories.
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number
dp0042.
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