Rent‐Sharing under Different Bargaining Regimes: Evidence from Linked Employer–Employee Data
| Date | 01 March 2013 |
| DOI | http://doi.org/10.1111/j.1467-8543.2011.00877.x |
| Author | François Rycx,Michael Rusinek |
| Published date | 01 March 2013 |
Rent-Sharing under Different Bargaining
Regimes: Evidence from Linked
Employer–Employee Databjir_87728..58
Michael Rusinek and François Rycx
Abstract
Using Belgian linked employer–employee data, we examine how collective
bargaining arrangements affect the relationship between firms’ profitability and
individual wages via rent-sharing. In industries where agreements are usually
renegotiated at firm-level (‘decentralized industries’) wages and firm-level
profits are positively correlated regardless of the type of collective wage agree-
ment by which the workers are covered (industry or firm). On the other hand,
where firm-level wage renegotiation is less common (‘centralized industries’),
wages are only significantly related to firms’ profitability for workers covered
by a firm-level collective agreement. Thus, industry-wide contracts that are not
complemented by a firm-level collective agreement suppress the impact of firm
profits on workers’ wages in centralized industries.
1. Introduction
It is often recommended to decentralize wage bargaining so that firms can
better align their pay policies with their specific needs. However, as noted by
some analysts (OECD 2004; Teulings 1998), wage-setting decentralization
also broadens the scope for local rent-sharing, that is, the extent to which
wages respond to firm-level profits. Indeed, if wage bargaining takes place at
the firm level, workers (possibly represented by trade unions) may be able to
extract a larger part of the rents generated by their firms. This could have
important economic consequences, as it may prevent an efficient allocation of
labour across firms, increase wage inequality, lead to smaller employment
adjustments, and affect the division of surplus between capital and labour
(Martins 2010a).
Michael Rusinek is at the Université Libre de Bruxelles (ULB), SBS-EM (DULBEA) and CEC.
François Rycx is at the Université Libre de Bruxelles (ULB), SBS-EM (CEB, DULBEA) and
IZA.
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British Journal of Industrial Relations doi: 10.1111/j.1467-8543.2011.00877.x
51:1 March 2013 0007–1080 pp. 28–58
© Blackwell Publishing Ltd/London School of Economics 2011. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Surprisingly, there is little evidence regarding the impact of bargaining
regimes on the responsiveness of wages to firm-level profits. On the one hand,
a growing body of literature examines the microeconomic effects of wage
bargaining institutions on the structure of wages.1On the other hand, a large
number of papers present evidence of strong positive correlations between
workers’ wages and firms’ profitability.2Yet the link between rent-sharing
and wage bargaining institutions has almost exclusively been analysed for the
Anglo-American world through the comparison of unionized and non-
unionized sectors. Results suggest that rent-sharing is not a particularity
of unionized sectors.3The distinction according to union status has less
meaning for most European countries because collective agreements are
generally extended to non-unionized members. Another particularity of
European countries is that collective bargaining occurs at multiple levels: at
the industry level, union federations and employer associations set wages for
all workplaces that fall under the scope of the agreement. In addition, firm
agreements may generally be concluded at the company level to complement
industry agreements. To our knowledge, the impact of bargaining institu-
tions on rent-sharing in European countries has been studied only by Gürtz-
gen (2009). Based on German micro data for the mining and manufacturing
sector, she found that individual wages are positively related to firm profits in
the non-union sector and under firm-specific contracts. Results also show
that industry-wide wage contracts generate a significantly lower responsive-
ness of wages to firm-level profitability.
One point neglected in most of the above-mentioned literature is that the
relative importance of firm and industry agreements differs substantially
across industries. Empirical work for countries such as Germany, the UK or
the USA suggests that in sectors essentially composed of small and labour-
intensive firms, wages are often set by industry agreements. In contrast,
wages are more likely to be determined at the firm level in industries com-
posed of big and capital-intensive firms (Hendricks and Kahn 1982; Katz
1993; Schnabel et al. 2006). The degree of wage bargaining centralization
thus varies across industries. So far, the literature on the wage effects of
bargaining institutions in European countries has focused solely on the
impact of the presence of a firm agreement in addition to an industry agree-
ment, without considering this centralization dimension. This may be an
important limitation particularly when examining whether the sensitivity of
wages to firm-level profits depends on intranational variations in bargaining
regimes. Indeed, the level at which wages are bargained (industry or firm) is
likely to have a different impact on rent-sharing in centralized and decentral-
ized industries. However, this issue only concerns countries where industry
and firm agreements can be combined (e.g. Belgium, the Netherlands or the
Nordic countries). Given that firm and industry agreements are mutually
exclusive in Germany, it is not relevant for Gürtzgen’s (2009) study.
The institutional explanation why the level of wage bargaining (industry or
firm) is expected to have a different effect on rent-sharing in centralized and
decentralized industries is as follows:
Rent-Sharing under Different Bargaining Regimes 29
© Blackwell Publishing Ltd/London School of Economics 2011.
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