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Microdata evidence on rent-sharing

  • Mahmood Arai
  • Fredrik Heyman

We examine the effect of firm profits on wages for individual workers while focusing on the empirical complications associated with estimating the extent of rent-sharing. Controlling for worker and firm fixed-effects and using several instruments to deal with the endogeneity of profits, we report results indicating that Ordinary Least Square (OLS)-estimates strongly underestimate the effects of profits on wages. Moreover, the effect of profits on wages are estimated separately for firms with increasing and decreasing profits within a given time period. We find a positive and stable effect only in firms with increasing profits. This is in line with the idea that falling profits do not lead to wage cuts while increasing profits imply higher wages.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840701721620
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 23 ()
Pages: 2965-2976

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Handle: RePEc:taf:applec:v:41:y:2009:i:23:p:2965-2976
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  1. Marcello Estevao & Stacey Tevlin, 2000. "Do firms share their success with workers? The response of wages to product market conditions," Finance and Economics Discussion Series 2000-17, Board of Governors of the Federal Reserve System (U.S.).
  2. Holmlund, B. & Zetterberg, J., 1989. "Insider Effects In Wage Determination: Evidence From Five Countries," Papers 1989a, Uppsala - Working Paper Series.
  3. Margolis, D.N. & Salvanes, K.G., 2001. "Do Firms Really Share Rents with Their Workers?," Papers 11/2001, Norwegian School of Economics and Business Administration-.
  4. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-95, September.
  5. Nekby, Lena, 2002. "Gender Differences in Rent Sharing and its Implications for the Gender Wage Gap," Working Paper Series 182, Trade Union Institute for Economic Research.
  6. Manning, Alan, 1994. "How Robust Is the Microeconomic Theory of the Trade Union?," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 430-59, July.
  7. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  8. Robert Gibbons & Lawrence F. Katz, 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," NBER Working Papers 3182, National Bureau of Economic Research, Inc.
  9. Agell, Jonas & Lundborg, Per, 1999. "Survey Evidence on Wage Rigidity: Sweden in the 1990s," Working Paper Series 154, Trade Union Institute for Economic Research.
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