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IZA
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Rent Sharing Before and After the Wage Bill
by
Pedro S. Martins
(November 2004)
published in: Applied Economics, 2009, 41(17), 2133-2151
Abstract:
Many biases plague the estimation of rent sharing in labour markets. Using a Portuguese
matched employer-employee panel, these biases are addressed in this paper in three
complementary ways: 1) Controlling directly for the fact that firms that share more rents will,
ceteris paribus, have lower net-of-wages profits. 2) Instrumenting profits via interactions
between the exchange rate and the share of exports in firms’ total sales. 3) Considering firm
or firm/worker spell fixed effects and highlighting the role of downward wage rigidity. These
approaches clarify conflicting findings in the literature and result, in our preferred
specification, in a Lester range of pay dispersion of 56%, also shown to be robust to a
number of competitive interpretations.
Text: See Discussion Paper No. 1376
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