Inter-industry wage differentials: How much does rent sharing matter?

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.FLWIN