Regulation and Wage Premia

Abstract

The paper explores the link between wage premia and the determinants of product market rents. We first estimate 2-digit industry premia from 1996 wage earnings data by category of worker (age, sex, education and type of contract) in 10 European countries, the US and Canada. Using industry-specific regulation data, we then look at the effects of restrictions to competition and public ownership on wage premia in non-manufacturing industries, where regulatory conditions vary the most and are better documented. We find that, given workers' bargaining power, anticompetitive regulations significantly increase wage premia, reflecting the presence of rents. However, premia decline in industries dominated by legal public monopolies, suggesting a hump-shaped relationship between regulation and premia. We show that the hump-shape is consistent with a model of non-pecuniary rent-sharing between workers and a populist public monopolist.

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

JEL Classification: J31, L51, C23