IDEAS home Printed from https://ideas.repec.org/p/sol/wpaper/08-035.html
   My bibliography  Save this paper

Rent-Sharing and the Cyclicality of Wage Differentials

Author

Listed:
  • Philip Du Caju
  • François Rycx
  • Ilan Tojerow

Abstract

This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to a unique matched employer-employee data set covering all the years from 1999 to 2005. Findings show the existence of large wage differentials among workers with the same observed characteristics and working conditions, employed in different sectors. These differentials are persistent and no particular downward or upward trend is observed. However, the dispersion of inter-industry wage differentials appears to show a cyclical pattern over time. Further results indicate that ceteris paribus, workers earn significantly higher wages when employed in more profitable firms. The time dimension of our matched employer-employee data allows us to instrument firms' profitability by its lagged value. The instrumented elasticity between wages and profits is found to be quite stable over time and varies between 0.034 and 0.043. It follows that Lester’s range of pay due to rent sharing fluctuates between about 24 and 37 percent of the mean wage. This rent-sharing phenomenon accounts for a large fraction of the industry wage differentials. We find indeed that the magnitude, dispersion and significance of industry wage differentials decreases sharply when controlling for profits.

Suggested Citation

  • Philip Du Caju & François Rycx & Ilan Tojerow, 2008. "Rent-Sharing and the Cyclicality of Wage Differentials," Working Papers CEB 08-035.RS, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:08-035
    as

    Download full text from publisher

    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/53962/1/RePEc_sol_wpaper_08-035.pdf
    File Function: RePEc_sol_wpaper_08-035
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Brenda Gannon & Robert Plasman & Francois Rycx & Ilan Tojerow, 2007. "Inter-Industry Wage Differentials and the Gender Wage Gap: Evidence from European Countries," The Economic and Social Review, Economic and Social Studies, vol. 38(1), pages 135-155.
    2. 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 318-337, April.
    3. John Van Reenen, 1996. "The Creation and Capture of Rents: Wages and Innovation in a Panel of U. K. Companies," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 195-226.
    4. Philip Du Caju & Gábor Kátay & Ana Lamo & Daphne Nicolitsas & Steven Poelhekke, 2010. "Inter-Industry Wage Differentials In EU Countries: What Do Cross-Country Time Varying Data Add to the Picture?," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 478-486, 04-05.
    5. Walsh, Frank, 1999. "A Multisector Model of Efficiency Wages," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 351-376, April.
    6. Pedro Martins, 2009. "Rent sharing before and after the wage bill," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2133-2151.
    7. Fathi Fakhfakh & Felix FitzRoy, 2004. "Basic Wages and Firm Characteristics: Rent Sharing in French Manufacturing," LABOUR, CEIS, vol. 18(4), pages 615-631, December.
    8. Joseph E. Stiglitz, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC's: The Labor Turnover Model," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 194-227.
    9. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    10. Thierry Lallemand & François Rycx, 2009. "Are young and old workers harmful for firm productivity?," DULBEA Working Papers 09-02.RS, ULB -- Universite Libre de Bruxelles.
    11. Robert Gibbons & Lawrence Katz, 1992. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 515-535.
    12. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    13. Vannetelbosch, Vincent J., 1996. "Testing between alternative wage-employment bargaining models using Belgian aggregate data," Labour Economics, Elsevier, vol. 3(1), pages 43-64, August.
    14. 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.
    15. François Rycx, 2002. "Inter-industry wage differentials: evidence from Belgium in a cross-national perspective," ULB Institutional Repository 2013/791, ULB -- Universite Libre de Bruxelles.
    16. Véronique Genre & Daphne Momferatou & Gilles Mourre, 2005. "Wage diversity in the euro area - an overview of labour cost differentials across industries," Occasional Paper Series 24, European Central Bank.
    17. Joop Hartog & Pedro Pereira & José Vieira, 2000. "Inter-industry Wage Dispersion in Portugal," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(4), pages 353-364, December.
    18. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    19. Louis N. Christofides & Andrew J. Oswald, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 985-1002.
    20. Maria Jepsen & Sile Padraigin O'Dorchai & Robert Plasman & François Rycx, 2005. "The wage penalty induced by part-time work: the case of Belgium," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 48(1-2), pages 73-94.
    21. Genre, Véronique & Momferatou, Daphne & Mourre, Gilles, 2005. "Wage diversity in the euro area - an overview of labour cost differentials across industries," Occasional Paper Series 24, European Central Bank.
    22. Teulings,Coen & Hartog,Joop, 2008. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, number 9780521049399.
    23. Anne Plasman & Robert Plasman & Michael Rusinek & François Rycx, 2002. "Indicators on gender pay equality," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 45(2), pages 11-40.
    24. Edin, Per-Anders & Zetterberg, Johnny, 1992. "Interindustry Wage Differentials: Evidence from Sweden and a Comparison with the United States," American Economic Review, American Economic Association, vol. 82(5), pages 1341-1349, December.
    25. Gürtzgen, Nicole, 2005. "Rent-sharing : Does the Bargaining Regime Make a Difference? Theory and Empirical Evidence," ZEW Discussion Papers 05-15, ZEW - Leibniz Centre for European Economic Research.
    26. Björklund, Anders & Bratsberg, Bernt & Eriksson, Tor & Jäntti, Markus & Raaum, Oddbjørn, 2004. "Inter-Industry Wage Differentials and Unobserved Ability: Siblings Evidence from Five Countries," IZA Discussion Papers 1080, Institute of Labor Economics (IZA).
    27. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
    28. Lindbeck, A. & Snower, D.J., 1988. "Inter-Industry Wage Structure And The Power Of Incumbent Workers," Papers 418, Stockholm - International Economic Studies.
    29. François Rycx & Ilan Tojerow, 2007. "Inter-Industry Wage Differentials: What Do We Know?," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 13-22.
    30. Maarten Goos & Jozef Konings, 2001. "Does Rent-Sharing Exist in Belgium ?. An Empirical Analysis Using Firm Level Data," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 65-79.
    31. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 593-618, July.
    32. Kahn, Lawrence M, 1998. "Collective Bargaining and the Interindustry Wage Structure: International Evidence," Economica, London School of Economics and Political Science, vol. 65(260), pages 507-534, November.
    33. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-139, March.
    34. David Margolis & Kjell G, Salvanes, 2001. "Do Firms Really Share Rents with their Workers," Working Papers 2001-16, Center for Research in Economics and Statistics.
    35. Barth, Erling & Zweimuller, Josef, 1992. "Labor Market Institutions and the Industry Wage Distribution: Evidence from Austria, Norway, and the U.S," Institute for Research on Labor and Employment, Working Paper Series qt1811h146, Institute of Industrial Relations, UC Berkeley.
    36. Goux, Dominique & Maurin, Eric, 1999. "Persistence of Interindustry Wage Differentials: A Reexamination Using Matched Worker-Firm Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 492-533, July.
    37. Magda, Iga & Rycx, Francois & Tojerow, Ilan & Valsamis, Daphné, 2008. "Wage Differentials across Sectors in Europe: An East-West Comparison," IZA Discussion Papers 3830, Institute of Labor Economics (IZA).
    38. Thierry Lallemand & Robert Plasman & François Rycx, 2005. "Why do large firms pay higher wages? evidence from matched worker-firm data," ULB Institutional Repository 2013/8743, ULB -- Universite Libre de Bruxelles.
    39. Kevin Reilly & Luisa Zanchi, 2002. "Industry Wage Differentials: How Many, Big and Significant Are They?," Labor and Demography 0209001, University Library of Munich, Germany.
    40. Ilan Tojerow & François Rycx, 2004. "Rent-sharing and the gender wage gap in Belgium," ULB Institutional Repository 2013/245700, ULB -- Universite Libre de Bruxelles.
    41. Mahmood Araï & Gérard Ballot & Ali Skalli, 1996. "Différentiels intersectoriels de salaire et caractéristiques des employeurs en France," Économie et Statistique, Programme National Persée, vol. 299(1), pages 37-58.
    42. John A. Abowd & Thomas Lemieux, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 983-1014.
    43. Mead Over & Dean Jolliffe & Andrew Foster, 1996. "Huber correction for two-stage least squares estimates," Stata Technical Bulletin, StataCorp LP, vol. 5(29).
    44. Fuss, Catherine & Wintr, Ladislav & Du Caju, Philip, 2007. "Downward wage rigidity for different workers and firms: an evaluation for Belgium using the IWFP procedure," Working Paper Series 840, European Central Bank.
    45. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
    46. Helwege, Jean, 1992. "Sectoral Shifts and Interindustry Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 55-84, January.
    47. Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
    48. Giovanni Ferro-Luzzi, 1994. "Inter-Industry Wage Differentials in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 130(III), pages 421-443, September.
    49. Benito, Andrew, 2000. "Inter-industry Wage Differentials in Great Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(0), pages 727-746, Special I.
    50. Sébastien Jean & Giuseppe Nicoletti, 2004. "Regulation and Wage Premia," Working Papers 2004-12, CEPII research center.
    51. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
    52. Alan Carruth & William Collier & Andy Dickerson, 2004. "Inter‐industry Wage Differences and Individual Heterogeneity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(5), pages 811-846, December.
    53. Lawrence F. Katz & Lawrence H. Summers, 1989. "Industry Rents: Evidence and Implications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 209-290.
    54. Martins, Pedro S., 2004. "Industry wage premia: evidence from the wage distribution," Economics Letters, Elsevier, vol. 83(2), pages 157-163, May.
    55. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-338, May.
    56. Holmlund, Bertil & Zetterberg, Johnny, 1991. "Insider effects in wage determination : Evidence from five countries," European Economic Review, Elsevier, vol. 35(5), pages 1009-1034, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bernal, Oscar & Oosterlinck, Kim & Szafarz, Ariane, 2010. "Observing bailout expectations during a total eclipse of the sun," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1193-1205, November.
    2. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
    3. Charles Plaigin, 2009. "Exploratory study on the presence of cultural and institutional growth spillovers," DULBEA Working Papers 09-03.RS, ULB -- Universite Libre de Bruxelles.
    4. Ilan Tojerow & Robert Plasman & Océane Bertrand, 2016. "Les impacts budgétaires pour les institutions régionales bruxelloises, la Région Wallonne et la Fédération Wallonie-Bruxelles," DULBEA Working Papers N°16-02.RR, ULB -- Universite Libre de Bruxelles.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Inter‐Industry Wage Differentials: How Much Does Rent Sharing Matter?," Manchester School, University of Manchester, vol. 79(4), pages 691-717, July.
    2. Robert Plasman & François Rycx & Ilan Tojerow, 2006. "Industry wage differentials, unobserved ability, and rent-sharing: evidence from matched employer-employee, 1992-2005," DULBEA Working Papers 06-14.RS, ULB -- Universite Libre de Bruxelles.
    3. Robert Plasman & François Rycx & Ilan Tojerow, 2006. "Industry wage differentials, unobserved ability, and rent-sharing : Evidence from matched worker-firm data, 1995-2002," Working Paper Research 90, National Bank of Belgium.
    4. Robert Plasman & François Rycx & Ilan Tojerow, 2007. "Wage differentials in Belgium: the role of worker and employer characteristics," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(1), pages 11-40.
    5. Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Wage Structure Effects of International Trade: Evidence from a Small Open Economy," Working Papers CEB 11-011, ULB -- Universite Libre de Bruxelles.
    6. Philip Du Caju & François Rycx & Ilan Tojerow, 2012. "Wage structure effects of international trade in a small open economy: the case of Belgium," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(2), pages 297-331, June.
    7. Brenda Gannon & Robert Plasman & Francois Rycx & Ilan Tojerow, 2007. "Inter-Industry Wage Differentials and the Gender Wage Gap: Evidence from European Countries," The Economic and Social Review, Economic and Social Studies, vol. 38(1), pages 135-155.
    8. 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.
    9. Magda, Iga & Rycx, Francois & Tojerow, Ilan & Valsamis, Daphné, 2008. "Wage Differentials across Sectors in Europe: An East-West Comparison," IZA Discussion Papers 3830, Institute of Labor Economics (IZA).
    10. Ilan Tojerow & François Rycx, 2004. "Rent-sharing and the gender wage gap in Belgium," ULB Institutional Repository 2013/245700, ULB -- Universite Libre de Bruxelles.
    11. Nicole Guertzgen, 2009. "Rent‐sharing and Collective Bargaining Coverage: Evidence from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 323-349, June.
    12. Guy Navon & Ilan Tojerow, 2006. "The Effects of Rent-sharing On the Gender Wage Gap in the Israeli Manufacturing Sector," Bank of Israel Working Papers 2006.05, Bank of Israel.
    13. 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.
    14. Sabien Dobbelaere & Jacques Mairesse, 2010. "Comparing Micro-evidence on Rent Sharing from Three Different Approaches," NBER Working Papers 16220, National Bureau of Economic Research, Inc.
    15. Philip Du Caju & Gábor Kátay & Ana Lamo & Daphne Nicolitsas & Steven Poelhekke, 2010. "Inter-Industry Wage Differentials In EU Countries: What Do Cross-Country Time Varying Data Add to the Picture?," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 478-486, 04-05.
    16. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 84-111.
    17. Frank Scharr, 2005. "Tarifbindung, Rententeilung und Konzessionsverträge als Einflussgrößen der Lohnhöhe in Unternehmen : eine Untersuchung mit Mikrodaten für thüringische Firmen," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 39, October.
    18. Amir Borges Ferreira Neto & Ricardo Da Silva Fregugli, 2014. "How Much Does Talent Matter? Evidences From The Brazilian Formal Cultural Industry," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 233, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    19. 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.
    20. Nekby, Lena, 2002. "Gender Differences in Rent Sharing and its Implications for the Gender Wage Gap," Working Paper Series 182, Trade Union Institute for Economic Research.

    More about this item

    Keywords

    Industry wage differentials; Rent-sharing; Matched employer-employee data;
    All these keywords.

    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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sol:wpaper:08-035. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cebulbe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Benoit Pauwels (email available below). General contact details of provider: https://edirc.repec.org/data/cebulbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.