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Wages, Profits and Rent-Sharing

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

Abstract

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.

Suggested Citation

  • David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4222
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    References listed on IDEAS

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    1. Nickell, Stephen J & Wadhwani, Sushil, 1990. "Insider Forces and Wage Determination," Economic Journal, Royal Economic Society, vol. 100(401), pages 496-509, June.
    2. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, March.
    3. 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 365-377, June.
    4. 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.
    5. Blanchflower, David G & Oswald, Andrew J & Garrett, Mario D, 1990. "Insider Power in Wage Determination," Economica, London School of Economics and Political Science, vol. 57(226), pages 143-170, May.
    6. Sparks, Gordon R & Wilton, David A, 1971. "Determinants of Negotiated Wage Increases: An Empirical Analysis," Econometrica, Econometric Society, vol. 39(5), pages 739-750, September.
    7. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    8. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    9. Erica L. Groshen, 1988. "Why do wages vary among employers?," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 19-38.
    10. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
    11. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
    12. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
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