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Do workers share in firm success? Pass-through estimates for New Zealand

Author

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  • Corey Allan

    (Ministry of Business, Innovation & Employment)

  • David C Maré

    (Motu Economic and Public Policy Research)

Abstract

We study the extent to which firm financial performance is passed on to workers in the form of higher wages and the degree to which this pass-through has changed over the period 2002-2018. We use both value added per worker and a measure of quasi-rents as measures of financial performance. Value added per worker is the standard measure used internationally. Quasi-rents better approximate the resources available to be shared between workers and firms as it takes into account the rental cost of capital as well as the reservation wages of workers. We estimate the reservation wage bill for each firm using estimates from a two-way fixed-effect model. We estimate models similar to those typically used in the international literature and further decompose the estimated pass-through into the contribution from worker sorting and the contribution from rent-sharing. Our instrumental variables estimates of pass-through are in the range of 0.12 and 0.19 for value added and 0.11 and 0.07 for quasi-rents. Worker sorting explains between 35% and 50% of pass-through. While the extent of overall pass-through is relatively stable over time, the contribution of worker sorting declines dramatically to explain almost none of the estimated pass-through. We contribute to the literature by demonstrating a method to calculate quasi-rents, by testing for changes over time in pass-through, and examining the relative importance of worker sorting over time.

Suggested Citation

  • Corey Allan & David C Maré, 2021. "Do workers share in firm success? Pass-through estimates for New Zealand," Working Papers 21_15, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:21_15
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    Cited by:

    1. Corey Allan & David C. Maré, 2022. "Who benefits from firm success? Heterogeneous rent-sharing in New Zealand," Working Papers 22_03, Motu Economic and Public Policy Research.

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    More about this item

    Keywords

    Wage determination; Rent sharing; Worker sorting;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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