Rent Creation and Sharing: New Measures and Impactson TFP

32 Pages Posted: 26 Mar 2018

See all articles by Gilbert Cette

Gilbert Cette

Banque de France

Jimmy Lopez

LEDi; Microeconomic and Structural Analysis Directorate

Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT); National Bureau of Economic Research (NBER)

Date Written: March 2018

Abstract

This analysis proposes new measures of rent creation or (notional) mark-up and workers’ share of rents on cross-country-industry panel data. While the usual measures of mark-up rate implicitly assume perfect labor markets, our approach relaxes this assumption, and takes into account that part of firms’ rent created in an industry is shared with workers to an extent which can vary with their skills. Our results are based on a cross-country-industry panel covering 14 OECD countries and 19 industries over the 1985-2005 period. In a first part of our analysis we draw on OECD indicators of product and labor market (anticompetitive) regulations to test how they are related to our new measures of mark-up and rent-sharing. We find that anti-competitive Non-Manufacturing Regulations (NMR) affect mark-up rates positively, and hence firms’ rent creation and workers’ share of rent, whereas Employment Protection Legislation (EPL) has no impact on rent creation, but boosts workers’ wages per hour. However, we observe that these wage increases are offset by a negative impact from EPL on hours worked per output unit, leading to a non-significant impact of EPL on workers’ share of rents. The effects of EPL for low-skilled workers appear to be more pronounced than those for medium-skilled workers, both being much greater than for highly-skilled workers. In the second part of our analysis, we estimate the impacts of our new measures on Total Factor Productivity (TFP) in the framework of a straightforward regression model. We use the OECD regulations indicators as relevant instrument to take care of endogeneity and to make sure that the resulting estimates assess the proper regulation impacts of rent creation and sharing without being biased by other confounding effects. We find that less competition in the product and labor markets as assessed by our measures of mark-up and workers’ share of rents have both substantial negative impacts on TFP.

Suggested Citation

Cette, Gilbert and Lopez, Jimmy and Mairesse, Jacques, Rent Creation and Sharing: New Measures and Impactson TFP (March 2018). NBER Working Paper No. w24426. Available at SSRN: https://ssrn.com/abstract=3149232

Gilbert Cette (Contact Author)

Banque de France ( email )

Paris
France

Jimmy Lopez

LEDi ( email )

Boulevard Gabriel
Dijon, Bougogne 21000
France

Microeconomic and Structural Analysis Directorate ( email )

Paris
France

Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT)

Keizer Karelplein 19
6211 TC Maastricht
Netherlands

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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