Eclipse of Rent-Sharing: The Effects of Managers’ Business Education on Wages and the Labor Share in the US and Denmark

91 Pages Posted: 21 Mar 2022

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Alex Xi He

University of Maryland - Robert H. Smith School of Business

Daniel le Maire

University of Copenhagen

Date Written: March 15, 2022

Abstract

This paper provides evidence from the US and Denmark that managers with a business degree (“business managers”) reduce their employees’ wages. Within five years of the appointment of a business manager, wages decline by 6% and the labor share by 5 percentage points in the US, and by 3% and 3 percentage points in Denmark. Firms appointing business managers are not on differential trends and do not enjoy higher output, investment, or employment growth thereafter. Using manager retirements and deaths and an IV strategy based on the diffusion of the practice of appointing business managers within industry, region and size quartile cells, we provide additional evidence that these are causal effects. We establish that the proximate cause of these (relative) wage effects are changes in rent-sharing practices following the appointment of business managers. Exploiting exogenous export demand shocks, we show that non-business managers share profits with their workers, whereas business managers do not. But consistent with our first set of results, these business managers show no greater ability to increase sales or profits in response to exporting opportunities. Finally, we use the influence of role models on college major choice to instrument for the decision to enroll in a business degree in Denmark and show that our estimates correspond to causal effects of practices and values acquired in business education—rather than the differential selection into business education of individuals unlikely to share rents with workers.

Keywords: business education, labor share, management, rent sharing, wages

JEL Classification: J30, J31, J53, M52, G30

Suggested Citation

Acemoglu, Daron and He, Alex Xi and le Maire, Daniel, Eclipse of Rent-Sharing: The Effects of Managers’ Business Education on Wages and the Labor Share in the US and Denmark (March 15, 2022). Available at SSRN: https://ssrn.com/abstract=4059303 or http://dx.doi.org/10.2139/ssrn.4059303

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Alex Xi He (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

HOME PAGE: http://www.alexxihe.com/

Daniel Le Maire

University of Copenhagen ( email )

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