Rent-Sharing, Hold-Up, and Wages: Evidence from Matched Panel Data

By David Card, Francesco Devicienti, A. Maida. Social Science Research Network, 2011

249 citations recorded by the source corpus.

It is widely believed that rent-sharing reduces the incentives for investment when long term contracts are infeasible because some of the returns to sunk capital are captured by workers. We propose a simple test for the degree of hold-up based on the fraction of capital costs that are deducted from the quasi-rent that determines negotiated wages. We implement the test using a data set that combines Social Security earnings records for workers in the Veneto region of Italy with detailed financial information for employers. We find strong evidence of rent-sharing, with an elasticity of wages with respect to current profitability of the firm of 3-7%, arising mainly from firms in concentrated industries. On the other hand we find little evidence that bargaining lowers the return on investment. Instead, firm-level bargaining appears to split the rents after deducting the full cost of capital.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/3b9a53526b21d6a9828a90576c669f32c377fc26

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In Economics and Econometrics

Citations in the corpus

The Multiprod project: A comprehensive overview (2017, background): “…the MultiProd output we are able to examine the evolution of the between plant/firm component of wage dispersion, which has been found to account for a large share of the wage inequality of individuals (see, for example, Dunne et al., 2004, Card et al., 2013, Card et al., 2014, Song et al., 2015).”
Imperfect Competition in the Labor Market (2011, background): “…per worker 0.06 Christofides and Oswald (1992) Canadian collective bargaining agreements, 1978-84 Industry profits per worker Lags as instruments 0.02a Card et al. (2010) Social security data from Veneto, Italy Firm value-added per worker Industry value-added per worker 0.07 a The equation is…”
Imperfect Competition, Compensating Differentials and Rent Sharing in the U.S. Labor Market (2019, methodology): “We complement this work by providing evidence of the pass-through rates for a broad 2See e.g. Guiso et al. (2005), Card et al. (2013), Card et al., 2018, Carlsson et al. (2016), Balke and Lamadon (2020), and Friedrich et al. (2019).”
Leave‐Out Estimation of Variance Components (2018, methodology): “The VWH data have been used in a number of recent studies (Card et al., 2014; Bartolucci et al., 2018; Serafinelli, 2019; Devicienti et al., 2019) and are well suited to the analysis of age differences because they provide precise information on dates of birth.”
Firms and Labor Market Inequality: Evidence and Some Theory (2018, unknown): “We suspect that measurement errors and transitory fluctuations in annual sales are relatively large, 7 A similar finding is reported by Card et al. (2014) using Italian data.”
People, Places and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs (2014, unknown): “Card et al. (2010b) document that attracting the headquarters of a publicly traded firm yields $3–10 million per year in contributions to local nonprofits.”
Workplace Heterogeneity and the Rise of West German Wage Inequality (2013, background): “Indeed, there is an extensive literature suggesting that more profitable firms offer higher wages (e.g., van Reenan, 1996; Arai, 2003; Guiso et al., 2005; Gürtzgen, 2010, Card et al., 2010).”