Inter-industry Wage Differentials: How Much Does Rent Sharing Matter?

By P. D. Caju, F. Rycx, Ilan Tojerow. Social Science Research Network, 2009

124 citations recorded by the source corpus.

This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to a unique matched employer-employee data set covering all the years from 1999 to 2005. Findings show the existence of large wage differentials among workers with the same observed characteristics and working conditions, employed in different sectors. These differentials are persistent and no particular downward or upward trend is observed. Further results indicate that ceteris paribus, workers earn significantly higher wages when employed in more profitable firms. The time dimension of our matched employer-employee data allows us to instrument firms' profitability by its lagged value. The instrumented elasticity between wages and profits is found to be quite stable over time and varies between 0.034 and 0.043. It follows that Lester’s range of pay due to rent sharing fluctuates between about 24 and 37 percent of the mean wage. This rent-sharing phenomenon accounts for a large fraction of the industry wage differentials. We find indeed that the magnitude, dispersion and significance of industry wage differentials decreases sharply when controlling for profits.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/66ac4bc244f7b26f9fede9d2dc5855bd143f30bb

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Citations in the corpus

Firms and Labor Market Inequality: Evidence and Some Theory (2018, background): “…FitzRoy 2004 Larger French manufacturing establishments; value added from establishment survey Mean log value added/ worker over past 3 years .12 Du Caju, Rycx, and Tojerow 2011 Belgian establishment panel; value added and labor cost from financial statements Value added minus labor costs per…”
Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms (2009, unknown): “The impact of the workforce composition on DNWR and DRWR has been empirically investigated for the US by Campbell (1997) and for Belgium by Du Caju et al. (2009).”