Globalized Labour Markets? International Rent Sharing Across 47 Countries

28 Pages Posted: 18 Nov 2015

See all articles by Pedro S. Martins

Pedro S. Martins

New University of Lisbon; IZA Institute of Labor Economics; Global Labor Organization (GLO)

Yong Yang

University of Sussex - School of Business, Management and Economics

Date Written: December 2015

Abstract

We present evidence about the role of rent sharing in fostering the interdependence of labour markets around the world. Our results draw on a firm‐level panel of more than 2,000 multinationals and over 5,000 of their affiliates, covering 47 home and host countries. We find considerable evidence that multinationals share profits internationally by paying higher wages to their workers in foreign affiliates in periods of higher headquarter profits. This occurs even across continents, and not only within Europe, as shown in earlier research. The results are robust to different tests, including a falsification exercise based on ‘matched’ parents. Finally, we show that rent sharing is higher when the affiliate is located in countries with specific relative characteristics, such as lower economic development or taxation, while it falls with the number of affiliates. We argue that these results are consistent with transfer pricing and bargaining views.

Suggested Citation

Martins, Pedro S. and Yang, Yong, Globalized Labour Markets? International Rent Sharing Across 47 Countries (December 2015). British Journal of Industrial Relations, Vol. 53, Issue 4, pp. 664-691, 2015, Available at SSRN: https://ssrn.com/abstract=2691722 or http://dx.doi.org/10.1111/bjir.12050

Pedro S. Martins (Contact Author)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

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

Global Labor Organization (GLO) ( email )

Collogne
Germany

Yong Yang

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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