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Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data

  • David Card
  • Francesco Devicienti
  • Agata Maida

Rent-sharing by workers can reduce the incentives for investment if some of the returns to sunk capital are captured in higher wages. We propose a simple measure of this "holdup" effect based on the size of the wage offset for firm-specific capital accumulation. Using Social Security earnings records for workers in the Veneto region of Italy linked to detailed financial data for their employers, we find strong evidence of rent-sharing, with an elasticity of wages with respect to potential rents per worker of around 4%, arising mainly at larger firms with higher price-cost margins. On the other hand, we find little evidence that bargaining lowers the return on investment. Instead, firm-level bargaining appears to split the rents after deducting the full cost of capital. Copyright 2014, Oxford University Press.

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Article provided by Oxford University Press in its journal Review of Economic Studies.

Volume (Year): 81 (2014)
Issue (Month): 1 ()
Pages: 84-111

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Handle: RePEc:oup:restud:v:81:y:2014:i:1:p:84-111
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