Wages, Profits and Rent-Sharing
David G. Blanchflower, Andrew J. Oswald, Peter Sanfey
NBER Working Paper No. 4222
The paper uses CPS data from 1964 to 1985 to test for the existence of rent-sharing in US tabor markets, Using an unbalanced panel from the manufacturing sector, and random-effects and fixed-effects specifications, the paper finds that changes in wages are explained by movements in lagged levels of profitability and unemployment. The results appear to be consistent with rent-sharing theory (or a labor contract framework with risk-averse firms) and to be inconsistent with the competitive labor market model. The paper estimates the unemployment elasticity of pay at approximately -0.03, and the profit elasticity of pay at between 0.02 and 0.05.
Published: Quarterly Journal of Economics, February, 1996, vol.CXI(1), pp. 227-252.