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Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data

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  • David Card
  • Francesco Devicienti
  • Agata Maida

Abstract

Rent-sharing by workers can reduce the incentives for investment if some of the returns to sunk capital are captured in higher wages. We propose a simple measure of this "holdup" effect based on the size of the wage offset for firm-specific capital accumulation. Using Social Security earnings records for workers in the Veneto region of Italy linked to detailed financial data for their employers, we find strong evidence of rent-sharing, with an elasticity of wages with respect to potential rents per worker of around 4%, arising mainly at larger firms with higher price-cost margins. 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. Copyright 2014, Oxford University Press.

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  • David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 84-111.
    • Handle: RePEc:oup:restud:v:81:y:2014:i:1:p:84-111
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    File URL: http://hdl.handle.net/10.1093/restud/rdt030
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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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