Pedro Martins (University of Warwick)

Rent Sharing Before and After the Wage Bill

Many biases plague the estimation of rent sharing in labour markets. Using a Portuguese matched employer-employee panel, these biases are addressed in this paper in three complementary ways: 1) Controlling directly for the fact that firms that share more rents will, ceteris paribus, have lower net-of-wages profits. 2) Instrumenting profits via interactions between the exchange rate and the share of exports in total sales of firms. 3) Considering firm or worker fixed effects. These approaches are shown to clarify conflicting findings in the literature. From our preferred specifications, robust to a number of competitive interpretations, we bound Lester ranges of pay dispersion between 22% and 56%.

Keywords: Rent Sharing; Instrumental Variables; Matched Employer-Employee Data; Fixed Effects.

JEL Codes: C33, J31, J41.

Session: 2e   Room 2004   Category: Wages 1

Paper