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Do Firms Share their Success with Workers? The Response of Wages to Product Market Conditions

  • Marcello Estevao
  • Stacey Tevlin

We provide new evidence that industry financial conditions help determine wages in the US manufacturing sector. Ordinary least squares estimates of the effect of rents per worker on wages are significantly positive, but quite small. We show that this may stem from econometric difficulties that plague the OLS estimates. Using the US input-output tables to isolate demand shocks, we overcome these issues and identify the effects of the industry financial situation on wages. Our IV estimates reveal substantial rent sharing-much more than is consistent with a purely competitive labour market. Copyright (c) The London School of Economics and Political Science 2003.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 70 (2003)
Issue (Month): 280 (November)
Pages: 597-617

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Handle: RePEc:bla:econom:v:70:y:2003:i:280:p:597-617
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  1. L Christofides & A Oswald, 1991. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," CEP Discussion Papers dp0042, Centre for Economic Performance, LSE.
  2. Marcello Estevao & Stacey Tevlin, 1995. "The role of profits in wage determination: evidence from US manufacturing," Finance and Economics Discussion Series 95-48, Board of Governors of the Federal Reserve System (U.S.).
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