Rent Sharing Before and After the Wage Bill

Abstract

Many biases plague the analysis of whether employers share rents with their employees, unlike what is predicted by the competitive labour market model. Using a Portuguese matched employer-employee panel, this paper is one of the first to address these biases 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 firms’ total sales. 3) Considering firm or firm/worker spell fixed effects and highlighting the role of downward wage rigidity. These approaches clarify conflicting findings in the literature and result, in our preferred specifications, in significant evidence of rent sharing (a Lester range of pay dispersion of 56%), also shown to be robust to a number of competitive interpretations.