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

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  • Philip Du Caju
  • François Rycx
  • Ilan Tojerow

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 ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/138898.

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Date of creation: 2011
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Publication status: Published in: Manchester School (2011) v.79 n° 4,p.691-717
Handle: RePEc:ulb:ulbeco:2013/138898

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Cited by:
  1. Kampelmann, Stephan & Rycx, Francois, 2011. "Does Institutional Diversity Account for Pay Rules in Germany and Belgium?," IZA Discussion Papers 6010, Institute for the Study of Labor (IZA).
  2. Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Wage structure effects of international trade: Evidence from a small open economy," Working Paper Research 214, National Bank of Belgium.
  3. Stephan Kampelmann & François Rycx, 2012. "The Impact of Educational Mismatch on Firm Productivity: Evidence from Linked Panel Data," Working Papers CEB 12-038, ULB -- Universite Libre de Bruxelles.
  4. 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?," MNB Working Papers 2010/9, Magyar Nemzeti Bank (the central bank of Hungary).
  5. Philip Du Caju & François Rycx & Ilan Tojerow, 2012. "Wage structure effects of international trade in a small open economy: The case of Belgium," ULB Institutional Repository 2013/138896, ULB -- Universite Libre de Bruxelles.
  6. 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.

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