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Industry wage differentials, unobserved ability, and rent-sharing : Evidence from matched worker-firm data, 1995-2002

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  • Robert Plasman

    ()
    (Université Libre de Bruxelles, Department of Applied Economics (DULBEA))

  • François Rycx

    ()
    (Université Libre de Bruxelles, Department of Applied Economics (DULBEA)
    IZA-Bonn)

  • Ilan Tojerow

    ()
    (Université Libre de Bruxelles, Department of Applied Economics (DULBEA)
    IZA-Bonn)

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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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 90.

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Length: 90 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:nbb:reswpp:200610-2

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Keywords: Industry wage differentials; Unobserved heterogeneity; Rent-sharing; Matched employer-employee data; Quantile regressions;

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References

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  1. Harris, Milton & Holstrom, Bengt, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 315-33, July.
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Cited by:
  1. Oscar Bernal Diaz & Kim Oosterlinck & Ariane Szafarz, 2009. "Observing bailout expectations during a total eclipse of the sun," DULBEA Working Papers 09-01.RS, ULB -- Universite Libre de Bruxelles.
  2. 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.
  3. Iga Magda & François Rycx & Ilan Tojerow & Daphné Valsamis, 2009. "Wage differentials across sectors in Europe: an east-west comparison," Working Papers CEB 09-003.RS, ULB -- Universite Libre de Bruxelles.
  4. Charles Plaigin, 2009. "Exploratory study on the presence of cultural and institutional growth spillovers," DULBEA Working Papers 09-03.RS, ULB -- Universite Libre de Bruxelles.

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