Rent sharing as firm‐level pay

Abstract

The aim of this paper is to examine rent sharing under a heterogeneous workforce using Finnish linked employer‐employee data in 1987‐1998. Rent sharing is one component of the empirically estimated firm‐effect and depends on the sensitivity of firm‐level payments to quasi‐rents. It is shown that rent sharing moderates other forms of firm‐level wages. Thus, the lower the starting wages, the higher rent sharing will be. Alternatively, in many firms new workers are attracted to the job by paying high entry wages, while these new workers do not obtain the full level of rent sharing in the first years of service. Highly educated workers are the main targets of rent sharing and rent sharing is more common in R&D‐intensive firms. All this shows the importance of human capital accumulation and flexible technology in explaining rent sharing. This can also explain why rent sharing is targeted at experienced workers in R&D‐intensive firms. In non‐R&D‐intensive firms, job search is also of importance. Rent sharing is more common when highly educated workers have flexible labour supply.

Citation

Piekkola, H. and Kauhanen, A. (2003), "Rent sharing as firm‐level pay", International Journal of Manpower, Vol. 24 No. 4, pp. 426-451. https://doi.org/10.1108/01437720310485924