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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 () (Free University of Brussels, DULBEA)
François Rycx () (Free University of Brussels, DULBEA and IZA Bonn)
Ilan Tojerow () (Free University of Brussels, DULBEA 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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2387.

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Length: 86 pages
Date of creation: Oct 2006
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Handle: RePEc:iza:izadps:dp2387

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Related research
Keywords: industry wage differentials; unobserved heterogeneity; rent-sharing; matched employer-employee data; quantile regressions;

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Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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Full references

Cited by:
(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. François Rycx & Ilan Tojerow & Daphné Valsamis, 2008. "Wage differentials across sectors in Europe: an east-west comparison," Working Papers DULBEA 08-17.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
    Other versions:
  2. Joachim Keller, 2008. "Agency problems in structured finance – a case study of European CLOs," Documents series 200808-22, National Bank of Belgium. [Downloadable!]
  3. Olivier Blanchard & Jordi Gali, 2006. "A new Keynesian model with unemployment," Research series 200610-4, National Bank of Belgium. [Downloadable!]
    Other versions:
  4. Joseph Plasmans & Tomasz Michalak & Jorge Fornero, 2006. "Simulation, estimation and welfare implications of monetary policies in a 3-country NOEM model," Research series 200610-6, National Bank of Belgium. [Downloadable!]
  5. Philippe Moës, 2008. "Multivariate structural time series models with dual cycles : implications for measurement of output gap and potential growth," Research series 200808-20, National Bank of Belgium. [Downloadable!]
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