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Microdata Evidence on Rent-Sharing

Author

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  • Arai, Mahmood

    (Department of Economics, Stockholm University)

  • Heyman, Fredrik

    (Trade Union Institute for Economic Research)

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 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

  • Arai, Mahmood & Heyman, Fredrik, 2004. "Microdata Evidence on Rent-Sharing," Working Paper Series 198, Trade Union Institute for Economic Research.
    • Handle: RePEc:hhs:fiefwp:0198
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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, 2018. "Comparing micro-evidence on rent sharing from two different econometric models," Labour Economics, Elsevier, vol. 52(C), pages 18-26.
    4. Wenjing Duan & Pedro S. Martins, 2022. "Rent sharing in China: Magnitude, heterogeneity and drivers," British Journal of Industrial Relations, London School of Economics, vol. 60(1), pages 176-219, March.
    5. 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.
    6. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.
    7. Reizer, Balázs, 2022. "Employment and Wage Consequences of Flexible Wage Components," Labour Economics, Elsevier, vol. 78(C).
    8. Jaakko Pehkonen & Sampo Pehkonen & Matthias Strifler & Mika Maliranta, 2017. "Profit Sharing and the Firm-Size Wage Premium," LABOUR, CEIS, vol. 31(2), pages 153-173, June.
    9. Jarle Aarstad & Olav A. Kvitastein, 2021. "Do Operating Profits Induce a Wage Premium Equally Shared among Employees Earning High or Low Incomes?," Economies, MDPI, vol. 9(2), pages 1-7, May.
    10. Allan, Corey & Maré, David C., 2022. "Who Benefits from Firm Success? Heterogenous Rent Sharing in New Zealand," IZA Discussion Papers 15264, Institute of Labor Economics (IZA).
    11. Lundborg, Per, 2005. "Wage Theories for the Swedish Labour Market," Working Paper Series 207, Trade Union Institute for Economic Research.
    12. Abdullah, Borhan & Zangelidis, Alexandros & Theodossiou, Ioannis, 2023. "Demand and supply effects on native-immigrant wage differentials: the case of Malaysia," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 57, pages 1-22.
    13. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 84-111.
    14. 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.
    15. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2020. "Labour Market Institutions, Technology and Rent Sharing," IZA Discussion Papers 13155, Institute of Labor Economics (IZA).
    16. Allan, Corey & Maré, David C., 2021. "Do Workers Share in Firm Success? Pass-through Estimates for New Zealand," IZA Discussion Papers 14764, Institute of Labor Economics (IZA).
    17. Edinson Tolentino, 2022. "An evaluation of a mandatory profit-sharing reform in Peru, using quasi-experimental methods," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(2), pages 313-334, June.
    18. 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.
    19. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2022. "Labour market regimes, technology and rent-sharing in Japan," Economic Modelling, Elsevier, vol. 112(C).
    20. Mertens, Matthias & Müller, Steffen & Neuschäffer, Georg, 2022. "Identifying rent-sharing using firms' energy input mix," IWH Discussion Papers 19/2022, Halle Institute for Economic Research (IWH).
    21. Jože P. Damijan & Luca Marcolin, 2013. "Global firms and wages: is there a rent sharing channel?," Working Papers 164, European Bank for Reconstruction and Development, Office of the Chief Economist.
    22. Matthias Strifler, 2018. "Do internal references lead to wage rigidity?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 65(1), pages 15-49, March.
    23. Kyoji Fukao & Cristiano Perugini & Fabrizio Pompei, 2023. "Non‐standard Employment and Rent‐sharing," Economica, London School of Economics and Political Science, vol. 90(357), pages 178-211, January.
    24. Lisa Simon, 2019. "Microeconometric Analyses on Determinants of Individual Labour Market Outcomes," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 83.

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    More about this item

    Keywords

    Rent-sharing; Matched employer- employee data;

    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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