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Do firms share their success with workers? The response of wages to product market conditions

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Author Info
Marcello Estevao
Stacey Tevlin

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Abstract

We provide strong new evidence that industry financial conditions play an important role in wage determination in the U.S. manufacturing sector. Ordinary least squares estimates of the effect of rents per worker on wages are positive and significant, but quite small. However, using two standard bargaining models, we illustrate that this may stem from a variety of econometric difficulties that plague the OLS estimates. In this paper, we are able to overcome these issues and identify the effects of the industry financial situation on wages. We do this using the U.S. input-output tables to isolate exogenous variation in an industry's product market conditions. Our instrumental variable estimates reveal a substantial amount of rent sharing in U.S. manufacturing---much more than is consistent with a purely competitive labor market.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2000-17.

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Date of creation: 2000
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Handle: RePEc:fip:fedgfe:2000-17

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Keywords: Wages ; Labor market ; Manufactures;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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:
  2. John M. Abowd, 1990. "The NBER Immigration, Trade, and Labor Markets Data Files," NBER Working Papers 3351, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
  4. 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:
  5. Van Reenen, John, 1996. "The Creation and Capture of Rents: Wages and Innovation in a Panel of U.K. Companies," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 195-226, February. [Downloadable!] (restricted)
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  6. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May. [Downloadable!] (restricted)
  7. William T. Dickens & Lawrence F. Katz, 1987. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Shea, John, 1993. "The Input-Output Approach to Instrument Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 145-55, April.
  9. Alan B. Krueger & Lawrence H. Summers, 1987. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March. [Downloadable!] (restricted)
  11. Marcello Estevao & Stacey Tevlin, 1995. "The role of profits in wage determination: evidence from US manufacturing," Finance and Economics Discussion Series 95-48, Board of Governors of the Federal Reserve System (U.S.).
  12. Angrist, Joshua D & Krueger, Alan B, 1995. "Split-Sample Instrumental Variables Estimates of the Return to Schooling," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 225-35, April.
  13. Joshua D. Angrist & Alan B. Krueger, 1995. "Split Sample Instrumental Variables," NBER Technical Working Papers 0150, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Nickell, Stephen & Kong, Paul, 1992. "An investigation into the power of insiders in wage determination," European Economic Review, Elsevier, vol. 36(8), pages 1573-1599, December. [Downloadable!] (restricted)
  15. 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)
  16. 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)
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  17. Kevin Denny & Machin, S, 1991. "The role of profitability and industrial wages in firm level wage determination," Fiscal Studies, Institute for Fiscal Studies, vol. 12(2), pages 34-45, May.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Martins, Pedro S., 2004. "Rent Sharing Before and After the Wage Bill," IZA Discussion Papers 1376, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Armando João Dalla Costa, 2005. "Sucessão E Sucesso Nas Empresas Familiares," Working Papers 0017, Universidade Federal do Paraná, Department of Economics. [Downloadable!]
  3. Arai, Mahmood & Heyman, Fredrik, 2004. "Microdata Evidence on Rent-Sharing," Working Paper Series 198, Trade Union Institute for Economic Research. [Downloadable!]
  4. Pedro S. Martins & Luiz Alberto Esteves, 2006. "Is There Rent Sharing In Developing Countries? Matched-Panel Evidence From Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 158, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
    Other versions:
  5. Kuckulenz, Anja, 2006. "Wage and Productivity Effect of Continuing Training in Germany: A Sectoral Analysis," ZEW Discussion Papers 06-25, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  6. Anja Kuckulenz, 2006. "Wage and Productivity Effect of Continuing Training in Germany : A Sectoral Analysis," Working Papers of the Research Group Heterogenous Labor 06-06, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
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