Rent-Sharing: Does the Bargaining Regime Make a Difference? Theory and Empirical Evidence

Abstract

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0515.pdf Non-technical summary: This paper analyses whether wages in Germany respond to firm-specific profitability conditions. Particular emphasis lies on the question of whether the extent of rent-sharing varies across di erent systems of wage determination. Those may be categorised into sector-specific wage agreements, firm-specific wage agreements and wage determination without any bargaining coverage. To derive testable hypotheses, we set up a brief theoretical model that analyses the sensitivity of wages to firm-specific conditions under di erent wage setting structures. The main result is that the degree of rent-sharing is likely to be the larger the more coordinated the wage-setting process and the more decentralised the level of wage determination. We therefore expect wages to react stronger to local profitability conditions in firms that are covered by a collective contract and where wages are determined at the firm-level than in non-covered firms. Firm-level wage determination in covered firms may either occur under firm-specific contracts or under centralised contracts with the adoption of opening or hardship clauses.The empirical analysis uses an establishment-level panel data set. The results generally suggest that rent-sharing is present in Germany. However, the extent of rent-sharing is found to be significantly lower in establishments that are subject to a collective wage agreement -irrespective of whether the agreement is industry-or firm-specific. While pooled OLS estimates yield positive estimates of the rent-sharing coe cient in establishments that are covered by a collective contract, SYS-GMMestimates accounting for unobserved heterogeneity and endogeneity of rents point to a rent-sharing coe cient of zero. For centralised wage-agreements, the invariance of wages against firm-specific profitability suggests that the use of flexibility provisions in central wage agreements appears to be empirically negligible. Even though firms may pay wages above the going rate and may make use of opting-out clauses, this potential for adjustments to local conditions at the firm-level appears to be largely unused. Even more surprising, however, is the invariance of wages against firm-profits in firms subject to a firm-specific wage contract. This result stands in sharp contrast to our theoretical analysis suggesting that under firm-specific contracts the sensitivity of wages to profits ought to be even larger than in non-cover...

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