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Inter-industry wage differentials: how much does rent sharing matter?

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  • Du Caju, Philip
  • Rycx, François
  • Tojerow, Ilan

Abstract

This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to a unique matched employer-employee data set covering all the years from 1999 to 2005. Findings show the existence of large wage differentials among workers with the same observed characteristics and working conditions, employed in different sectors. These differentials are persistent and no particular downward or upward trend is observed. Further results indicate that ceteris paribus, workers earn significantly higher wages when employed in more profitable firms. The time dimension of our matched employer-employee data allows us to instrument firms' profitability by its lagged value. The instrumented elasticity between wages and profits is found to be quite stable over time and varies between 0.034 and 0.043. It follows that Lester’s range of pay due to rent sharing fluctuates between about 24 and 37 percent 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. JEL Classification: D31, J31, J41

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1103.

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Date of creation: Oct 2009
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Handle: RePEc:ecb:ecbwps:20091103

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Keywords: Industry wage differentials; Matched employer-employee data; Rent-sharing;

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Cited by:
  1. Kampelmann, Stephan & Rycx, François, 2012. "The impact of educational mismatch on firm productivity: Evidence from linked panel data," Economics of Education Review, Elsevier, vol. 31(6), pages 918-931.
  2. Philip Du Caju & Gábor Kátay & Ana Lamo & Daphne Nicolitsas & Steven Poelhekke, 2010. "Inter-Industry Wage Differentials In EU Countries: What Do Cross-Country Time Varying Data Add to the Picture?," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 478-486, 04-05.
  3. Philip Du Caju & François Rycx & Ilan Tojerow, 2012. "Wage structure effects of international trade in a small open economy: the case of Belgium," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(2), pages 297-331, June.
  4. Du Caju, Philip & Rycx, François & Tojerow, Ilan, 2011. "Wage structure effects of international trade: evidence from a small open economy," Working Paper Series 1325, European Central Bank.
  5. Dorota Witkowska, 2013. "Gender Disparities in the Labor Market in the EU," International Advances in Economic Research, Springer, vol. 19(4), pages 331-354, November.
  6. Stephan Kampelmann & François Rycx, 2011. "Does institutional diversity account for pay rules in Germany and Belgium?," DULBEA Working Papers 11-12, ULB -- Universite Libre de Bruxelles.

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