RENT-SHARING AND WAGES - EVIDENCE FROM COMPANY AND ESTABLISHMENT PANELS

A central question in labor economics and macroeconomics is whether th e textbook competitive model provides an adequate representation of th e labor market. Using longitudinal data on companies and establishment s, this article suggests that it may not. As predicted by rent-sharing models of the labor market, changes in profitability are shown to fee d through into long-run changes in wages. These are not temporary wage effects and are not driven by the unionized workplaces in the data. T he article's estimates imply that, for rent-sharing reasons alone, Les ter's ''range'' of wages is approximately 16%.