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INTER-INDUSTRY WAGE DIFFERENTIALS: HOW MUCH DOES RENT SHARING MATTER?

Authors

  • PHILIP DU CAJU,

    1. NBB
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  • FRANÇOIS RYCX,

    1. NBB, ULB, CEB, DULBEA and IZA-Bonn
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  • ILAN TOJEROW

    1. NBB, ULB, DULBEA, FNRS and IZA-Bonn
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    • This paper is produced as part of the Wage Dynamics Network (WDN) coordinated by the European Central Bank (ECB). Financial support from the National Bank of Belgium (NBB) is gratefully acknowledged. The authors would like to thank two anonymous referees for many useful comments and suggestions on an earlier version of this paper. We are also most grateful to Filip Abraham, Joep Konings, Robert Plasman, Sébastien Roux, Raf Wouters as well as participants at the NBER Summer Institute (Boston, July 2009), ESPE (Sevilla, June 2009), Eurosystem Wage Dynamics Network (Bank of France, Paris, April 2008), LARGE-CEB (Strasbourg, September 2008), DG Employment (European Commission, Brussels, May 2007), AEA (Naples, June 2006), NBB (Brussels, October 2006) and SASE (Trier, July 2006) conferences for helpful advice. Finally, we would like to thank Statistics Belgium for giving access to the data. Any remaining errors are those of the authors.


  • Manuscript received 5.9.07; final version received 8.7.09.

Abstract

This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to detailed matched employer-employee data covering all the years from 1999 to 2005. Findings show the existence of large and persistent wage differentials among workers with the same observed characteristics, employed in different sectors. Results also indicate that ceteris paribus, workers earn significantly higher wages when employed in more profitable firms. This rent sharing phenomenon accounts for a significant fraction of the inter-industry wage differentials. We find indeed that the magnitude, dispersion and significance of inter-industry wage differentials decrease sharply when controlling for profits.

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