Rent-Sharing, Hold-Up, and Wages: Evidence from Matched Panel Data
University of California, Berkeley - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)
Collegio Carlo Alberto; University of Turin - Department of Economics and Financial Sciences G. Prato
University of Turin
IZA Discussion Paper No. 6086
It is widely believed that rent-sharing reduces the incentives for investment when long term contracts are infeasible because some of the returns to sunk capital are captured by workers. We propose a simple test for the degree of hold-up based on the fraction of capital costs that are deducted from the quasi-rent that determines negotiated wages. We implement the test using a data set that combines Social Security earnings records for workers in the Veneto region of Italy with detailed financial information for employers. We find strong evidence of rent-sharing, with an elasticity of wages with respect to current profitability of the firm of 3-7%, arising mainly from firms in concentrated industries. On the other hand we find little evidence that bargaining lowers the return on investment. Instead, firm-level bargaining appears to split the rents after deducting the full cost of capital.
Number of Pages in PDF File: 43
Keywords: rent-sharing, hold-up, employer-employee data
JEL Classification: J31working papers series
Date posted: November 13, 2011
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