Rent-Sharing, Hold-Up, and Wages: Evidence from Matched Panel Data

43 Pages Posted: 13 Nov 2011

See all articles by David Card

David Card

University of California, Berkeley - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Francesco Devicienti

University of Turin - Collegio Carlo Alberto; University of Turin - Department of Economics and Financial Sciences G. Prato

Agata Maida

University of Turin

Abstract

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.

Keywords: rent-sharing, hold-up, employer-employee data

JEL Classification: J31

Suggested Citation

Card, David E. and Devicienti, Francesco and Maida, Agata, Rent-Sharing, Hold-Up, and Wages: Evidence from Matched Panel Data. IZA Discussion Paper No. 6086. Available at SSRN: https://ssrn.com/abstract=1958741

David E. Card (Contact Author)

University of California, Berkeley - Department of Economics ( email )

Room 3880
Berkeley, CA 94720-3880
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510-642-5222 (Phone)
510-643-7042 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Francesco Devicienti

University of Turin - Collegio Carlo Alberto ( email )

via Real Collegio 30
Moncalieri, Torino 10024
Italy

University of Turin - Department of Economics and Financial Sciences G. Prato ( email )

C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy

Agata Maida

University of Turin ( email )

Via Po 53
Torino, Turin - Piedmont 10100
Italy

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