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Rent-sharing and collective wage contracts-evidence from German establishment-level data

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Using German establishment-level data, this article analyses whether wages respond to firm-specific profitability conditions. Particular emphasis is given to the question of whether the extent of rent-sharing varies with collective bargaining coverage. In this context, two conflicting hypotheses are tested. The first one asserts that unions exploit their bargaining power at the firm level and appropriate a larger share of rents than the bargaining parties in uncovered firms. The second one states that unions favour a compressed intra-industry wage structure and suppress the responsiveness of wages to firm-specific profitability conditions. The empirical analysis provides strong support for the second hypothesis. While Pooled Ordinary Least Squares (POLS) estimates yield positive estimates of the rent-sharing coefficient in covered establishments, dynamic panel data estimates accounting for unobserved heterogeneity and the endogeneity of rents point to a rent-sharing coefficient of zero.

Document Type: Research Article


Affiliations: Department of Labour Markets, Human Resources and Social Policy, Centre for European Economic Research, Germany

Publication date: September 1, 2010

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