Using a linked employer-employee data set, this paper analyses the relationship between firm-profitability and wages. Particular emphasis is given to the question of whether the sensitivity of wages to firm-specific rents varies with collective bargaining coverage. To address this issue, we distinguish sector-specific wage agreements, firm-specific wage agreements and wage determination without any bargaining coverage. Our findings indicate that individual wages are positively related to firm-specific rents in the non-union sector and under firm-specific contracts. Industry-wide wage contracts, however, seem to suppress firm-level rent-sharing. While pooled OLS estimates yield a positive correlation between wages and quasi-rents under centralised contracts, estimates accounting for unobserved individual and establishment heterogeneity point to a coefficient of zero. Differenced GMM estimates accounting for the endogeneity of our profitability measure even point to a negative relationship under centralised contracts.
Gürtzgen, Nicole (2005), Rent-Sharing and Collective Bargaining Coverage – Evidence from Linked Employer-Employee Data, ZEW Discussion Paper No. 05-90, Mannheim.