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Rent Sharing Before and After the Wage Bill

  • Pedro S. Martins

Many biases plague the analysis of whether employers share rents with their employees, unlike what is predicted by the competitive labour market model. Using a Portuguese matched employer-employee panel, these biases are addressed here in three complementary ways: 1) Controlling directly for the fact that firms that share more rents will, ceteris paribus, have lower net-of-wages profits. 2) Instrumenting profits via interactions between the exchange rate and the share of exports in firms’ total sales. 3) Considering firm or firm/worker spell fixed effects and highlighting the role of downward wage rigidity. These approaches clarify conflicting findings in the literature and result, in our preferred specifications, in significant evidence of rent sharing (a Lester range of pay dispersion of 56%), also shown to be robust to a number of competitive interpretations.

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Paper provided by Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research in its series Working Papers with number 12.

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Date of creation: May 2008
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Handle: RePEc:cgs:wpaper:12
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  1. Hildreth, Andrew K G & Oswald, Andrew J, 1997. "Rent-Sharing and Wages: Evidence from Company and Establishment Panels," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 318-37, April.
  2. David Margolis & Kjell G, Salvanes, 2001. "Do Firms Really Share Rents with their Workers," Working Papers 2001-16, Centre de Recherche en Economie et Statistique.
  3. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August.
  4. Holden, Steinar & Wulfsberg, Fredrik, 2007. "Downward nominal wage rigidity in the OECD," Working Paper Series 0777, European Central Bank.
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  10. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  11. Hartog, Joop & Pereira, Pedro T. & Vieira, José António Cabral, 1999. "Inter-industry Wage Dispersion in Portugal: high but falling," IZA Discussion Papers 53, Institute for the Study of Labor (IZA).
  12. Teal, Francis, 1996. "The Size and sources of economic rents in a developing country manufacturing labour market," Economic Journal, Royal Economic Society, vol. 106(437), pages 963-76, July.
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  17. 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.
  18. Fathi Fakhfakh & Felix FitzRoy, 2004. "Basic Wages and Firm Characteristics: Rent Sharing in French Manufacturing," LABOUR, CEIS, vol. 18(4), pages 615-631, December.
  19. Joop Hartog & Pedro Pereira & José Vieira, 2000. "Inter-industry Wage Dispersion in Portugal," Empirica, Springer, vol. 27(4), pages 353-364, December.
  20. Stephen G. Bronars & Melissa Famulari, 2001. "Shareholder Wealth and Wages: Evidence for White-Collar Workers," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 328-354, April.
  21. Nekby, Lena, 2003. "Gender differences in rent sharing and its implications for the gender wage gap, evidence from Sweden," Economics Letters, Elsevier, vol. 81(3), pages 403-410, December.
  22. John M. Abowd & Thomas Lemieux, 1991. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," NBER Working Papers 3808, National Bureau of Economic Research, Inc.
  23. Arai, Mahmood & Heyman, Fredrik, 2001. "Wages, Profits and Individual Unemployment Risk : Evidence from Matched Worker-Firm Data," Working Paper Series 172, Trade Union Institute for Economic Research.
  24. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  25. Oswald, Andrew, 1996. "Rent-Sharing in the Labor Market," The Warwick Economics Research Paper Series (TWERPS) 474, University of Warwick, Department of Economics.
  26. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe," Working Paper 2004/5, Norges Bank.
  27. David Margolis & Kjell G, Salvanes, 2001. "Do Firms Really Share Rents with their Workers," Working Papers 2001-16, Centre de Recherche en Economie et Statistique.
  28. Richard A. Lester, 1952. "A range theory of wage differentials," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 5(4), pages 483-500, July.
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