Rent Sharing Before and After the Wage Bill
Pedro S. Martins
Queen Mary College - School of Business and Management; CEG - IST; Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 1376
Many biases plague the estimation of rent sharing in labour markets. Using a Portuguese matched employer-employee panel, these biases are addressed in this paper in three complementary ways: 1) Controlling directly for the fact that firms that share more rents will, ceteris paribus, have lower net-of-wages profits. 2) Instrumenting profits via interactions between the exchange rate and the share of exports in firms' total sales. 3) Considering firm or firm/worker spell fixed effects and highlighting the role of downward wage rigidity. These approaches clarify conflicting findings in the literature and result, in our preferred specification, in a Lester range of pay dispersion of 56%, also shown to be robust to a number of competitive interpretations.
Number of Pages in PDF File: 42
Keywords: rent sharing, instrumental variables, matched employer-employee data, fixed effects
JEL Classification: C33, J31, J41working papers series
Date posted: November 3, 2004
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