Rent sharing in China: Magnitude, heterogeneity and drivers

Abstract

Do firms in China share rents with their workers? We address this question by examining firm-level panel data covering virtually all manufacturing firms over the period 2000-2007, representing an average of 200,000 firms and 54 million workers per year. We find robust evidence of rent sharing (RS): workers that would move from low-to high-profit firms would see their wages increase by about 45\%. The results are based on multiple instrumental variables, including firm-specific international trade shocks. We also present a number of complementary findings: RS is weaker in firms with more women and less educated workers; RS involves an element of risk sharing, as wages also decrease when profits fall; RS is lower in regions with more latent competition from rural workers; higher minimum wages tend to reduce RS; and, while employer labour market power reduces wages, it increases RS. Overall, despite its importance, RS in China is smaller than in developed economies, which reflects the weaker bargaining power of its workers and the different scope of its labour market institutions.

Making Their Own Weather? Estimating Employer Labour-Market Power and Its Wage Effects

“…Finally, we consider the sector dimension. As indicated before, some studies of employer concentration define local labour-markets using the firm's industry rather than the worker's occupations or only examine the manufacturing sector because of data limitations (Benmelech et al 2022, Duan & Martins 2022, Rinz 2022. In order to shed light on the potential impact of such methodological approaches, we focus on the industry of each establishment indicated in our data to make two additional analyses.…”

“…Moreover, using a subset of their data for which posted wage information is available, they find that concentration is associated with large declines in earnings, of 17% from moving from the 25th to the 75th percentile of the Herfindhal distribution. Additional important contributions include Benmelech et al (2022) and Rinz (2022) on the U.S, Dube et al (2020) on online markets, Bassanini et al (2023a) on six European countries (including Portugal) 2 , Dodini et al (2023) and Dodini et al (2021) for Norway, Bassanini et al (2023b) and Marinescu et al (2021) on France, and Duan & Martins (2022) on China, the latter two also considering the role of rent sharing. Because of data limitations, some of these papers only examine manufacturing or cannot consider the roles of occupations or of employment stocks.…”