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Rent sharing in China: Magnitude, heterogeneity and drivers

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  • Wenjing Duan
  • Pedro S. Martins

Abstract

Do firms in China share rents with their workers? We address this question by examining firm‐level panel data covering virtually all manufacturing firms over the period 2000–2007, representing an average of 52 million workers per year. We find evidence of rent sharing (RS), with wage–profit elasticities of between 4% and 6%. These results are based on multiple instrumental variables, including firm‐specific international trade shocks. We also present a number of complementary findings to understand better the nature of RS in the country: it involves an element of risk sharing, as wages also decrease when profits fall; RS is lower in regions with more latent competition from rural workers; higher minimum wages tend to reduce RS; and, while employer labour market power reduces wages, it increases RS. Overall, despite its importance, RS in China is smaller and more symmetric than in developed economies, which reflects the weaker bargaining power of its workers and the earlier stage of development of its labour market institutions.

Suggested Citation

  • Wenjing Duan & Pedro S. Martins, 2022. "Rent sharing in China: Magnitude, heterogeneity and drivers," British Journal of Industrial Relations, London School of Economics, vol. 60(1), pages 176-219, March.
  • Handle: RePEc:bla:brjirl:v:60:y:2022:i:1:p:176-219
    DOI: 10.1111/bjir.12609
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    Cited by:

    1. Pedro S. Martins, 2018. "Making their own weather? Estimating employer labour-market power and its wage effects," Working Papers 95, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    2. Martins, Pedro S. & Melo, António, 2024. "Making their own weather? Estimating employer labour-market power and its wage effects," Journal of Urban Economics, Elsevier, vol. 139(C).
    3. Sónia Cabral & Pedro S. Martins & João Pereira dos Santos & Mariana Tavares, 2021. "Collateral Damage? Labour Market Effects of Competing with China—at Home and Abroad," Economica, London School of Economics and Political Science, vol. 88(350), pages 570-600, April.
    4. Dai, Li & Martins, Pedro S., 2020. "Does vocational education pay off in China? Instrumental-variable quantile-regression evidence," GLO Discussion Paper Series 495, Global Labor Organization (GLO).
    5. Quint Wiersma, 2019. "The impact of WTO accession on Chinese firms' product and labor market power," Tinbergen Institute Discussion Papers 19-037/V, Tinbergen Institute.
    6. Thang Ngoc Bach & Canh Quang Le & Thang Van Nguyen, 2021. "Rent Sharing, Investment, and Collective Bargaining: Evidence from Employee‐Level Data in Vietnam," The Developing Economies, Institute of Developing Economies, vol. 59(1), pages 3-38, March.
    7. Chen, Yunsi & Hu, Dezhuang, 2023. "Why are exporters more gender-friendly? Evidence from China," Economic Modelling, Elsevier, vol. 118(C).
    8. Dobbelaere, Sabien & Wiersma, Quint, 2020. "The Impact of Trade Liberalization on Firms' Product and Labor Market Power," IZA Discussion Papers 12951, Institute of Labor Economics (IZA).
    9. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2022. "Labour market regimes, technology and rent-sharing in Japan," Economic Modelling, Elsevier, vol. 112(C).

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    More about this item

    JEL classification:

    • 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
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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