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Rent creation and sharing: new measures and impacts on TFP

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  • Gilbert Cette
  • Jimmy Lopez
  • Jacques Mairesse

Abstract

This analysis proposes new measures of rent creation or (notional) mark-up and workers’ share of rents on cross-country-industry panel data. While the usual measures of mark-up rate implicitly assume perfect labor markets, our approach relaxes this assumption, and takes into account that part of firms’ rent created in an industry is shared with workers to an extent which can vary with their skills. Our results are based on a cross-country-industry panel covering 14 OECD countries and 19 industries over the 1985-2005 period. In a first part of our analysis we draw on OECD indicators of product and labor market (anticompetitive) regulations to test how they are related to our new measures of mark-up and rent-sharing. We find that anti-competitive Non-Manufacturing Regulations (NMR) affect mark-up rates positively, and hence firms’ rent creation and workers’ share of rent, whereas Employment Protection Legislation (EPL) has no impact on rent creation, but boosts workers’ wages per hour. However, we observe that these wage increases are offset by a negative impact from EPL on hours worked per output unit, leading to a non-significant impact of EPL on workers’ share of rents. The effects of EPL for low-skilled workers appear to be more pronounced than those for medium-skilled workers, both being much greater than for highly-skilled workers. In the second part of our analysis, we estimate the impacts of our new measures on Total Factor Productivity (TFP) in the framework of a straightforward regression model. We use the OECD regulations indicators as relevant instrument to take care of endogeneity and to make sure that the resulting estimates assess the proper regulation impacts of rent creation and sharing without being biased by other confounding effects. We find that less competition in the product and labor markets as assessed by our measures of mark-up and workers’ share of rents have both substantial negative impacts on TFP.

Suggested Citation

  • Gilbert Cette & Jimmy Lopez & Jacques Mairesse, 2018. "Rent creation and sharing: new measures and impacts on TFP," Working papers 674, Banque de France.
  • Handle: RePEc:bfr:banfra:674
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    References listed on IDEAS

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    13. Philippe Askenazy & Gilbert Cette & Paul Maarek, 2018. "Rent‐Sharing and Workers' Bargaining Power: An Empirical Cross‐Country/ Cross‐Industry Panel Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(2), pages 563-596, April.
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    17. Gilbert Cette & Jimmy Lopez & Jacques Mairesse, 2016. "Market Regulations, Prices, and Productivity," American Economic Review, American Economic Association, vol. 106(5), pages 104-108, May.
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    Cited by:

    1. Claire Alestra & Gilbert Cette & Valérie Chouard & Rémy Lecat, 2020. "Long-term growth impact of climate change and policies: the Advanced Climate Change Long-term (ACCL) scenario building model," AMSE Working Papers 2007, Aix-Marseille School of Economics, France.
    2. Philippon, Thomas & Gutierrez, German, 2018. "How EU Markets Became More Competitive Than US Markets: A Study of Institutional Drift," CEPR Discussion Papers 12983, C.E.P.R. Discussion Papers.
    3. Campos, Nauro F. & Macchiarelli, Corrado, 2021. "The dynamics of core and periphery in the European monetary union: A new approach," Journal of International Money and Finance, Elsevier, vol. 112(C).
    4. Chantal Kegels & Dirk Verwerft, 2018. "Working Paper 09-18 - Economic impact of professional services reform in Belgium - A DSGE simulation," Working Papers 1809, Federal Planning Bureau, Belgium.
    5. Kyoji Fukao & Cristiano Perugini, 2021. "The Long‐Run Dynamics of the Labor Share in Japan," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(2), pages 445-480, June.
    6. Alestra, C. & Cette, G. & Chouard, V. & Lecat, R., 2022. "Growth impact of climate change and response policies: The advanced climate change long-term (ACCL) model1," Journal of Policy Modeling, Elsevier, vol. 44(1), pages 96-112.
    7. Cette, Gilbert & Koehl, Lorraine & Philippon, Thomas, 2020. "Labor share," Economics Letters, Elsevier, vol. 188(C).

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    More about this item

    Keywords

    product market regulations; labor market regulations; mark-up; rent-sharing; TFP.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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