Rent-Sharing, Hold-up, and Wages: Evidence from Matched Panel Data

David E. Card, Francesco Devicienti () and Agata Maida

No 6086, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: It is widely believed that rent-sharing reduces the incentives for investment when long term contracts are infeasible because some of the returns to sunk capital are captured by workers. We propose a simple test for the degree of hold-up based on the fraction of capital costs that are deducted from the quasi-rent that determines negotiated wages. We implement the test using a data set that combines Social Security earnings records for workers in the Veneto region of Italy with detailed financial information for employers. We find strong evidence of rent-sharing, with an elasticity of wages with respect to current profitability of the firm of 3-7%, arising mainly from firms in concentrated industries. On the other hand we find little evidence that bargaining lowers the return on investment. Instead, firm-level bargaining appears to split the rents after deducting the full cost of capital.

Keywords: rent-sharing; hold-up; employer-employee data (search for similar items in EconPapers)
JEL-codes: J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-lab and nep-lma
Date: 2011-10
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Working Paper: Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data (2010)
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