Product Market Regulation and Wage Premia in Europe and North-America: An Empirical Investigation

OECD Economics Department Working Paper No. 318

33 Pages Posted: 4 Feb 2002

See all articles by Sébastien Jean

Sébastien Jean

OECD Economics Department

Giuseppe Nicoletti

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: January 22, 2002

Abstract

Using new cross-country data on industry-specific product market regulations, this paper investigates the relationship between wage premia and some of the policy determinants of product market rents. Hourly wage premia in 2-digit manufacturing and non-manufacturing industries are estimated from detailed data on wage earnings in (or around) 1996 by category of worker (age, sex, education and type of contract) in 12 European and North-American countries. The effects of regulation on these wage premia are estimated by panel data regression techniques. We find that product market regulation restricting competition has a significant positive impact on wage premia in both manufacturing and non-manufacturing industries. However, in the latter industries, this effect is offset by a negative effect of legal public monopolies on wage premia. Since public ownership per se shows no relation to premia, we interpret this result as evidence of either a low-productivity trap due to x-inefficiency in heavily regulated industries or the existence of rent-sharing in the form of non-pecuniary rents, such as job stability and/or low worker effort in public monopolies. Our data is unable to discriminate among these two possibilities.

Keywords: Regulation, competition, wage premia, rent-sharing, panel data

JEL Classification: J31, L51, C23

Suggested Citation

Jean, Sébastien and Nicoletti, Giuseppe, Product Market Regulation and Wage Premia in Europe and North-America: An Empirical Investigation (January 22, 2002). OECD Economics Department Working Paper No. 318, Available at SSRN: https://ssrn.com/abstract=298620 or http://dx.doi.org/10.2139/ssrn.298620

Sébastien Jean

OECD Economics Department ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Giuseppe Nicoletti (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France
+33 1 4524 8730 (Phone)
+33 1 4524 1347 (Fax)

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