Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data

Abstract

When wage contracts are relatively short-lived, rent sharing may reduce the incentives for investment since some of the returns to sunk capital are captured by workers. In this paper we use a matched worker-firm data set from the Veneto region of Italy that combines Social Security earnings records for employees with detailed financial information for employers to measure the degree of rent sharing and test for holdup. We estimate wage models with job match effects, allowing us to control for any permanent differences in productivity across workers, firms, and job matches. We also compare OLS and instrumental variables specifications that use sales of firms in other regions of the country to instrument value-added per worker. We find strong evidence of rent-sharing, with a "Lester range" of variation in wages between profitable and unprofitable firms of around 10%. On the other hand we find little evidence that bargaining lowers the return to investment. Instead, firm-level bargaining in Veneto appears to split the rents after deducting the full cost of capital. Our findings are consistent with a dynamic bargaining model (Crawford, 1988) in which workers pay up front for the returns to sunk capital they will capture in later periods.

Decoupling of wages from productivity: what implications for public policies?

“…the measure of wage dispersion used in the aggregate analysis. This is consistent with a large body of evidence based on linked employer-employee data suggesting that between-firm wage divergence is a key explanation of wage divergence across individual workers, including for Brazil (Helpman et al, 2017), Denmark (Bagger et al, 2013), Germany (Baumgarten et al, 2016;Card et al,2013;Goldschmidt and Schmieder, 2015), Italy (Card et al, 2014), Portugal (Card et al, 2016), Sweden (Skans et al, 2009), United Kingdom (Faggio et al, 2010) and the United States (Dunne et al, 2004;Barth et al, 2016;Song et al, 2015).…”

Now you see it, now you don’t: The vanishing beauty premium

“…Wages are typically right skewed, both in observational data and in our experimental setting. Taking the natural logarithm avoids having estimates being driven by outliers (see, for example, Amiti and Davis, 2012;Autor et al, 2013;Walker, 2013;and Card et al, 2014). Specifications that use levels do not produce substantively different results and are available in the online appendix.…”

Place Based Policies with Unemployment

“…Abowd and Lemieux (1993), for example, find in a sample of unionized plants in Canada that β is no greater than 0.4. Unsurprisingly, researchers studying environments where workers are less formally organized typically find much lower bargaining shares (Barth et al, 2011;Card, Devicienti, and Maida, 2010;Carlsson, Messina, and Skans, 2011;Guiso, Pistaferri, and Schivardi, 2005).…”