Do Firms Share Their Success with Workers? The Response of Wages to Product Market Conditions

Posted: 1 Oct 2000

See all articles by Marcello M. Estevão

Marcello M. Estevão

International Monetary Fund (IMF) - Western Hemisphere Department

Stacey Tevlin

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: March 23, 2000

Abstract

We provide strong new evidence that industry financial conditions play an important role in wage determination in the U.S. manufacturing sector. Ordinary least squares estimates of the effect of rents per worker on wages are positive and significant, but quite small. However, using two standard bargaining models, we illustrate that this may stem from a variety of econometric difficulties that plague the OLS estimates. In this paper, we are able to overcome these issues and identify the effects of the industry financial situation on wages. We do this using the U.S. input-output tables to isolate exogenous variation in an industry's product market conditions. Our instrumental variable estimates reveal a substantial amount of rent sharing in U.S. manufacturing - much more than is consistent with a purely competitive labor market.

Keywords: wages, rent-sharing, profit-sharing

JEL Classification: J3

Suggested Citation

Estevao, Marcello M. and Tevlin, Stacey, Do Firms Share Their Success with Workers? The Response of Wages to Product Market Conditions (March 23, 2000). Available at SSRN: https://ssrn.com/abstract=231131

Marcello M. Estevao

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

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Stacey Tevlin (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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