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Industry Wage Differentials, Unobserved Ability, and Rent-Sharing: Evidence from Matched Worker-Firm Data, 1995-2002

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Author Info
Robert Plasman () (DULBEA, Université libre de Bruxelles, Brussels)
Tojerow () (DULBEA, Université libre de Bruxelles, Brussels)
François Rycx () (DULBEA, Université libre de Bruxelles, Brussels, and IZA, Bonn)

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Abstract

This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to a unique matched employer-employee data set covering the period 1995-2002. Findings show the existence of large and persistent wage differentials among workers with the same observed characteristics and working conditions, employed in different sectors. The hypothesis that workers with better unmeasured abilities are over-represented in high-wage sectors may not be rejected on the basis of Martins’ (2004) methodology. However, the contribution of this explanation to the observed industry wage differentials appears to be limited. Further results show that ceteris paribus, workers earn significantly higher wages when employed in more profitable firms. Our instrumented wage-profit elasticity stands at 0.063 and Lester’s range of pay is about 41 per cent of the mean wage. This rent-sharing phenomenon accounts for a large fraction of the industry wage differentials. We find indeed that the magnitude, dispersion and significance of industry wage differentials decreases sharply when controlling for profits.

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Publisher Info
Paper provided by Université libre de Bruxelles, Department of Applied Economics (DULBEA) in its series Working Papers DULBEA with number 06-14.RS.

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Length: 94 pages
Date of creation: Oct 2006
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Publication status: Forthcoming in the European Journal of Industrial Relations
Handle: RePEc:dul:wpaper:06-14rs

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Web page: http://www.dulbea.org
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Related research
Keywords: Collective bargaining wage structure.

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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References listed on IDEAS
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  1. Tojerow, Ilan & Rycx, François & Plasman, Robert, 2004. "Rent sharing and the gender wage gap in Belgium," Economic Literature ULB 2013-785, Université libre de Bruxelles, Libraries. [Downloadable!]
  2. Christofides, Louis N & Oswald, Andrew J, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 985-1002, August. [Downloadable!] (restricted)
    Other versions:
  3. Rycx, François, 2002. "Inter-industry wage differentials: evidence from Belgium in a cross-national perspective," Economic Literature ULB 2013-791, Université libre de Bruxelles, Libraries. [Downloadable!]
  4. John P. Haisken-DeNew & Christoph M. Schmidt, . "Inter-Industry and Inter-Region Differentials: Mechanics and Interpretation," Working Papers 9504, SELAPO Center for Human Resources. [Downloadable!]
  5. Edin, Per-Anders & Zetterberg, Johnny, 1992. "Interindustry Wage Differentials: Evidence from Sweden and a Comparison with the United States," American Economic Review, American Economic Association, vol. 82(5), pages 1341-49, December. [Downloadable!] (restricted)
    Other versions:
  6. 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. [Downloadable!] (restricted)
    Other versions:
  7. François Rycx & Ilan Tojerow, 2002. "Inter-industry Wage Differentials and the Gender Wage Gap in Belgium," Brussels Economic Review/Cahiers Economiques de Bruxelles, Editions du DULBEA, Université libre de Bruxelles, Department of Applied Economics (DULBEA), vol. 45(2), pages 119-141.
  8. Mead Over & Dean Jolliffe & Andrew Foster, 1996. "Huber correction for two-stage least squares estimates," Stata Technical Bulletin, StataCorp LP, vol. 5(29). [Downloadable!]
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  10. Benito, Andrew, 2000. " Inter-industry Wage Differentials in Great Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(0), pages 727-46, Special I. [Downloadable!] (restricted)
  11. Véronique Genre & Daphne Momferatou & Gilles Mourre, 2005. "Wage diversity in the euro area - an overview of labour cost differentials across industries," Occasional Paper Series 24, European Central Bank. [Downloadable!]
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  13. Kevin Reilly & Luisa Zanchi, 2002. "Industry Wage Differentials: How Many, Big and Significant Are They?," Labor and Demography 0209001, EconWPA. [Downloadable!]
  14. Kahn, Lawrence M, 1998. "Collective Bargaining and the Interindustry Wage Structure: International Evidence," Economica, London School of Economics and Political Science, vol. 65(260), pages 507-34, November. [Downloadable!] (restricted)
  15. Björklund, Anders & Bratsberg, Bernt & Eriksson, Tor & Jäntti, Markus & Raaum, Oddbjörn, 2004. "Inter-Industry Wage Differentials and Unobserved Ability: Siblings Evidence from Five Countries," IZA Discussion Papers 1080, Institute for the Study of Labor (IZA). [Downloadable!]
  16. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. [Downloadable!] (restricted)
  17. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  18. Rycx, François & Plasman, Robert, 2003. "Industry wage differentials and the bargaining regime in a corporatist country," Economic Literature ULB 2013-787, Université libre de Bruxelles, Libraries. [Downloadable!]
  19. Blanchflower, David G & Oswald, Andrew J & Sanfey, Peter, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 227-51, February. [Downloadable!] (restricted)
    Other versions:
  20. Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March. [Downloadable!] (restricted)
  21. 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. [Downloadable!] (restricted)
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