Changing Institutions in the European Market: The Impact on Mark-Ups and Rents Allocation

47 Pages Posted: 8 Apr 2011

Multiple version iconThere are 2 versions of this paper

Date Written: December 15, 2010

Abstract

We investigate whether the completion of the Single Market Programme has enhanced competition on the product markets across European countries, taking into account the companion structural reforms undertaken by the member countries, particularly in the labour market and the institutional setting of important industries (i.e. network industries). We test for a break in both mark-ups and the division of rent between capital and labour based on a statistical model incorporating efficient bargaining in the labour market. Using industry data for ten EU countries we find that, without controlling for changes in the rent sharing, mark-up estimates tend to increase in the 1990s. However, once we assume efficient bargaining in the labour market, mark-ups remain virtually unchanged or, in some sectors or groups of countries, even decrease; this reflects the declining shares of rents accruing to workers as a result of their diminished bargaining power. The evidence is particularly strong for high and medium-tech manufacturing, for construction and for those activities that went through deep institutional changes and privatization programmes.

Keywords: institutional changes, mark-up, rent-sharing

JEL Classification: D40, J50, L50

Suggested Citation

Bassanetti, Antonio and Torrini, Roberto and Zollino, Francesco, Changing Institutions in the European Market: The Impact on Mark-Ups and Rents Allocation (December 15, 2010). Bank of Italy Temi di Discussione (Working Paper) No. 781, Available at SSRN: https://ssrn.com/abstract=1803164 or http://dx.doi.org/10.2139/ssrn.1803164

Antonio Bassanetti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Roberto Torrini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Francesco Zollino (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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