Texto para discussão 08/2007
Is there rent sharing in developing countries? Matched-panel data from Brazil
Pedro S. Martins*, Luiz A. Esteves**
Abstract
We provide evidence about the determinants of the wage structures of developing
countries by examining the case of Brazil. Our specific question is whether Brazil’s dramatic
income and wage differentials can be explained by the division of rents between firms and their
employees, unlike in competitive labour markets. Using detailed individual-level matched panel
data, covering a large share of manufacturing firms and more than 30 million workers between 1997
and 2002, we consider the endogeneity of profits, by adopting different measures of profits and
different instruments and by controlling for spell fixed effects. Our results, robust to different
specifications and tests, indicate no evidence of rent sharing. This conclusion contrasts with
findings for most developed countries, even those with flexible labour markets. Possible
explanations for the lack of rent sharing include the weakness of labour-market institutions, the high
levels of worker turnover and the macroeconomic instability faced by the country.
Keywords: wage bargaining; instrumental variables; matched employer-employee data; developing countries.
JEL: J31, J41
* Queen Mary, University of London; IZA, Bonn; and CEG-IST, Lisbon.
** Universidade Federal do Paraná and Università di Siena.
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