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Compensation Structure and Product Market Competition

  • John M. Abowd
  • Laurence Allain

The inability to measure the opportunity cost of labor has plagued analyses of firm-level compensation policies for many years. Using a newly constructed data set of French workers and firms, we estimate the opportunity cost of the employees' time based on a measure of the person-effect in the wage equations (derived from Abowd, Kramarz and Margolis 1994). We then make direct calculations of the quasi-rent per worker at each firm and the conditions within that firm's product market, as measured by international prices, using a representative sample of private French firms. We find that quasi- rents per worker are only mildly related to the structure of the French product market. The systematic variation in our quasi-rents is related to international market prices and work force structure, however, producing an estimate of bargaining power for the employees of about 0.4. This estimate, while slightly larger than other estimates, may be quite reasonable for the workers in an economy in which the vast majority of jobs are covered by industry-level collective bargaining agreements.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5493.

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Date of creation: Mar 1996
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Publication status: published as Annales d'Economie et de Statistique, issue 41-42, (January-June 1996), pp.207-217
Handle: RePEc:nbr:nberwo:5493
Note: LS
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  1. Abowd, John M, 1989. "The Effect of Wage Bargains on the Stock Market Value of the Firm," American Economic Review, American Economic Association, vol. 79(4), pages 774-800, September.
  2. John M. Abowd & Francis Kramarz, 1992. "A Test of Negotiation and Incentive Compensation Models Using Longitudinal French Enterprise Data," NBER Working Papers 4044, National Bureau of Economic Research, Inc.
  3. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO.
  4. Orley Ashenfelter & James N. Brown, 1985. "Testing the Efficiency of Employment Contracts," Working Papers 573, Princeton University, Department of Economics, Industrial Relations Section..
  5. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
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