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Microdata evidence on rent-sharing

Author

Listed:
  • Mahmood Arai
  • Fredrik Heyman

Abstract

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.

Suggested Citation

  • Mahmood Arai & Fredrik Heyman, 2009. "Microdata evidence on rent-sharing," Applied Economics, Taylor & Francis Journals, vol. 41(23), pages 2965-2976.
  • Handle: RePEc:taf:applec:v:41:y:2009:i:23:p:2965-2976
    DOI: 10.1080/00036840701721620
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    References listed on IDEAS

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    1. Andrews, Martyn J. & Schank, Thorsten & Upward, Richard, 2004. "Practical estimation methods for linked employer-employee data," Discussion Papers 29, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
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    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. Robert Gibbons & Lawrence Katz, 1992. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 515-535.
    7. 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 430-459, July.
    8. Marcello Estevao & Stacey Tevlin, 2003. "Do Firms Share their Success with Workers? The Response of Wages to Product Market Conditions," Economica, London School of Economics and Political Science, vol. 70(280), pages 597-617, November.
    9. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-595, September.
    10. Agell, Jonas & Lundborg, Per, 1999. "Survey Evidence on Wage Rigidity: Sweden in the 1990s," Working Paper Series 154, Trade Union Institute for Economic Research.
    11. 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 334-338, May.
    12. Holmlund, Bertil & Zetterberg, Johnny, 1991. "Insider effects in wage determination : Evidence from five countries," European Economic Review, Elsevier, vol. 35(5), pages 1009-1034, July.
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    Citations

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    Cited by:

    1. Matthias Strifler & Thomas Beissinger, 2016. "Fairness Considerations in Labor Union Wage Setting – A Theoretical Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(3), pages 303-330, July.
    2. Mikael Carlsson & Julián Messina & Oskar Nordström Skans, 2016. "Wage Adjustment and Productivity Shocks," Economic Journal, Royal Economic Society, vol. 126(595), pages 1739-1773, September.
    3. Dobbelaere, Sabien & Mairesse, Jacques, 2017. "Comparing Micro-Evidence on Rent Sharing from Two Different Econometric Models," IZA Discussion Papers 11156, Institute for the Study of Labor (IZA).
    4. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    5. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.
    6. repec:bla:labour:v:31:y:2017:i:2:p:153-173 is not listed on IDEAS
    7. Lundborg, Per, 2005. "Wage Theories for the Swedish Labour Market," Working Paper Series 207, Trade Union Institute for Economic Research.
    8. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 84-111.
    9. Kuhn, Johan Moritz, 2007. "My Pay is Too Bad (I Quit). Your Pay is Too Good (You're Fired)," Working Papers 07-5, University of Aarhus, Aarhus School of Business, Department of Economics.
    10. Guy Navon & Ilan Tojerow, 2013. "Does Rent-sharing Profit Female and Male Workers? Evidence from Israeli Matched Employer–Employee Data," LABOUR, CEIS, vol. 27(3), pages 331-349, September.
    11. repec:ebd:wpaper:164 is not listed on IDEAS
    12. repec:spr:inrvec:v:65:y:2018:i:1:d:10.1007_s12232-017-0283-6 is not listed on IDEAS

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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