Inter-Industry Wage Differentials: How Much Does Rent Sharing Matter?

Date Added: Oct 2009
Format: PDF

This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to a unique matched employer-employee data set covering all the years from 1999 to 2005. Findings show the existence of large wage differentials among workers with the same observed characteristics and working conditions, employed in different sectors. These differentials are persistent and no particular downward or upward trend is observed. Further results indicate that ceteris paribus, workers earn significantly higher wages when employed in more profitable firms. The time dimension of the matched employer-employee data allows them to instrument firms' profitability by its lagged value.