Do Firms Really Share Rents with Their Workers?

40 Pages Posted: 30 Jul 2001

See all articles by David N. Margolis

David N. Margolis

Centre d'Economie de la Sorbonne; IZA Institute of Labor Economics; World Bank - Social Protection Unit (HDNSP); Paris School of Economics (PSE)

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics

Date Written: July 2001

Abstract

We use matched firm-worker panel data from France and Norway to consider observationally equivalent alternatives to the hypothesis that firms share product market rents with their workers in the form of higher wages. After documenting the main stylized facts, we find that neither the main statistical explanations (group effect in residuals and measurement error) nor sectoral shocks seem to be responsible for the observed correlation. Statistical-economic explanations (endogeneity of profits, omitted variable biases in terms of individual productive characteristics) are slightly more successful, as instrumentation reduces the significance level in France to 89% (via an increase in the standard error of the estimate). The most complete model, with unobserved heterogeneity in both time-invariant firm compensation policy and time-invariant individual characteristics, instrumental variables and a complete set of controls for worker observables and sectoral shocks renders the coefficient insignificant for France and weakens its significance for Norway and the presence of a more mobile labor force in France, although it may also be due to insufficient degrees of freedom.

Keywords: Rent Sharing, Matched Employer-Employee Panel Data, International Comparison

JEL Classification: J31, C23

Suggested Citation

Margolis, David N. and Salvanes, Kjell G., Do Firms Really Share Rents with Their Workers? (July 2001). IZA Discussion Paper No. 330. Available at SSRN: https://ssrn.com/abstract=276520

David N. Margolis (Contact Author)

Centre d'Economie de la Sorbonne ( email )

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Paris Cedex 13, 75647
France
(33-1) 44 07 82 20 (Phone)
(33-1) 44 07 82 47 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

World Bank - Social Protection Unit (HDNSP) ( email )

Human Development Network
1818, H Street, N.W.
Washington, DC 20433
United States

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47 5 595 9315 (Phone)
+47 5 595 9543 (Fax)

IZA Institute of Labor Economics

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

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