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Rent Sharing Before and After the Wage Bill

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  • Martins, Pedro S.

    ()
    (Queen Mary, University of London)

Abstract

Many biases plague the estimation of rent sharing in labour markets. Using a Portuguese matched employer-employee panel, these biases are addressed in this paper in three complementary ways: 1) Controlling directly for the fact that firms that share more rents will, ceteris paribus, have lower net-of-wages profits. 2) Instrumenting profits via interactions between the exchange rate and the share of exports in firms’ total sales. 3) Considering firm or firm/worker spell fixed effects and highlighting the role of downward wage rigidity. These approaches clarify conflicting findings in the literature and result, in our preferred specification, in a Lester range of pay dispersion of 56%, also shown to be robust to a number of competitive interpretations.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1376.

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Length: 42 pages
Date of creation: Nov 2004
Date of revision:
Publication status: published in: Applied Economics, 2009, 41(17), 2133-2151
Handle: RePEc:iza:izadps:dp1376

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Keywords: rent sharing; matched employer-employee data; fixed effects; instrumental variables;

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References

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  1. F. Fakhfakh & F. Fitzroy, 2003. "Basic Wages and Firm Characteristics : Rent-sharing in French Manufacturing," Working Papers ERMES, ERMES, University Paris 2 0311, ERMES, University Paris 2.
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  5. Arai, Mahmood, 1999. "Wages, Profits and Capital Intensity: Evidence from Matched Worker-Firm Data," Research Papers in Economics, Stockholm University, Department of Economics 1999:3, Stockholm University, Department of Economics.
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  7. David Margolis & Kjell G, Salvanes, 2001. "Do Firms Really Share Rents with their Workers," Working Papers, Centre de Recherche en Economie et Statistique 2001-16, Centre de Recherche en Economie et Statistique.
  8. Paul Oyer, 2000. "Why Do Firms Use Incentives that Have No Incentive Effects?," Econometric Society World Congress 2000 Contributed Papers 1440, Econometric Society.
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  10. 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, University of Chicago Press, vol. 15(2), pages 318-37, April.
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  12. Marcello Estevao & Stacey Tevlin, 2000. "Do firms share their success with workers? The response of wages to product market conditions," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-17, Board of Governors of the Federal Reserve System (U.S.).
  13. Oswald, Andrew, 1996. "Rent-Sharing in the Labor Market," The Warwick Economics Research Paper Series (TWERPS) 474, University of Warwick, Department of Economics.
  14. Arai, Mahmood & Heyman, Fredrik, 2001. "Wages, Profits and Individual Unemployment Risk : Evidence from Matched Worker-Firm Data," Working Paper Series, Trade Union Institute for Economic Research 172, Trade Union Institute for Economic Research.
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  19. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  20. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 31(1), pages 93-118, February.
  21. Francis Kramarz, 2003. "Wages and International Trade," Working Papers, Centre de Recherche en Economie et Statistique 2003-27, Centre de Recherche en Economie et Statistique.
  22. Sandra E. Black & Philip E. Strahan, 2001. "The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry," American Economic Review, American Economic Association, American Economic Association, vol. 91(4), pages 814-831, September.
  23. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 665-88, August.
  24. Hartog, Joop & Pereira, Pedro T. & Vieira, José António Cabral, 1999. "Inter-industry Wage Dispersion in Portugal: high but falling," IZA Discussion Papers 53, Institute for the Study of Labor (IZA).
  25. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
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  1. Some economics of payroll taxes
    by Pedro S. Martins in The Portuguese Economy on 2011-05-16 14:54:00
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