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Wages, Profits and Rent-Sharing

  • David G. Blanchflower
  • Andrew J. Oswald
  • Peter Sanfey

The paper uses CPS data from 1964 to 1985 to test for the existence of rent-sharing in US tabor markets, Using an unbalanced panel from the manufacturing sector, and random-effects and fixed-effects specifications, the paper finds that changes in wages are explained by movements in lagged levels of profitability and unemployment. The results appear to be consistent with rent-sharing theory (or a labor contract framework with risk-averse firms) and to be inconsistent with the competitive labor market model. The paper estimates the unemployment elasticity of pay at approximately -0.03, and the profit elasticity of pay at between 0.02 and 0.05.

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File URL: http://www.nber.org/papers/w4222.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4222.

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Date of creation: Dec 1992
Date of revision:
Publication status: published as Quarterly Journal of Economics, February, 1996, vol.CXI(1), pp. 227-252.
Handle: RePEc:nbr:nberwo:4222
Note: LS
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  1. Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  2. David G. Blanchflower & Andrew Oswald, 1995. "International Wage Curves," NBER Chapters, in: Differences and Changes in Wage Structures, pages 145-174 National Bureau of Economic Research, Inc.
  3. Max H. Bazerman, 1985. "Norms of distributive justice in interest arbitration," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 38(4), pages 558-570, July.
  4. Nickell, S. & Wadhwani, S., 1989. "Insider Forces And Wage Determination," Papers 334, London School of Economics - Centre for Labour Economics.
  5. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  6. repec:cup:cbooks:9780521818551 is not listed on IDEAS
  7. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
  8. David G. Blanchflower & Andrew J. Oswald & Mario D. Garrett, 1989. "Insider Power in Wage Determination," NBER Working Papers 3179, National Bureau of Economic Research, Inc.
  9. Oswald, Andrew J, 1986. "Unemployment Insurance and Labor Contracts under Asymmetric Information: Theory and Facts," American Economic Review, American Economic Association, vol. 76(3), pages 365-77, June.
  10. Sparks, Gordon R & Wilton, David A, 1971. "Determinants of Negotiated Wage Increases: An Empirical Analysis," Econometrica, Econometric Society, vol. 39(5), pages 739-50, September.
  11. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  12. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  13. 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.
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