Comparing micro-evidence on rent sharing from three different approaches
Sabien Dobbelaere & Jacques Mairesse
#2015-029
Empirical labor economists have resorted to estimating the
responsiveness of workers' wages on firms' ability to pay to assess the
extent to which employers share rents with their employees. This paper
compares this labor economics approach with two other approaches that
rely on standard micro production data only: the productivity approach
for which estimates of the output elasticities of labor and materials
and data on the respective revenue shares are needed and the accounting
approach which boils down to directly computing the extent of rent
sharing from firm accounting information. Using matched
employer-employee data on 60,294 employees working in 9,849 firms over
the period 1984-2001 in France, we quantify industry differences in
rent-sharing parameters derived from the three approaches. We find a
median absolute extent of rent sharing of about 0.30 using either the
productivity or the accounting approach. Only exploiting firm-level
information brings this median rent-sharing parameter down to 0.16 using
the labor economics approach. Controlling for unobserved worker ability
further reduces the median absolute extent of rent sharing to 0.08. Our
analysis makes clear that the three different approaches face important
trade-offs. Hence, empirical economists interested in establishing that
profits are shared should select the appropriate approach based on the
particular research question and on the data at hand.
JEL Classification: C23, D21, J31, J51
Keywords: Rent sharing, wage equation, production function, matched
employer-employee data