To Have and to Hold: Trends in Industry Rents for Germany

Project Start: 07/2013
Status: Completed
Researchers: Markus Gangl, Fabian Ochsenfeld
Category: Corporate Finance

Topic and Objectives

The fundamental aims of the project are to provide empirical estimates of changing industry rents in Germany since the 1970s, to contribute evidence on demand-side, technological and corporate governance sources of (changes in) rent acquisition, and to situate observed trends relative to the international evidence. As the German wage distribution has seen a rise in top earnings since the mid-1990s, the project will pay particular attention to the role of soaring rents in management positions in the service sector, especially in financial services.

The work is being continued in the project “Organizational Structure, Technological Change and Rising Wage Inequality in Germany: an Empirical Study Using Linked Employer-Employee Data”, funded for the period 1/2015-12/2017 by the German Science Foundation as part of its Priority Program “The German Labor Market in a Globalized World: Challenges through Trade, Technology, and Demographics” (SPP 1764). The first paper “Task-specific industry rents in Germany, 1973-2010” is eventually abandoned due to inadequate quality of income data in the Mikrozensus. For the second project paper on “Rents, sorting and matching: a decomposition of changes in the German wage distribution using panel data”, a first version of the statistical analysis has been completed. A write-up of the full manuscript is projected for spring 2015. There is a delay relative to original plan because of a switch in publication strategy; while the initial planning was to aim for 2-3 papers in medium-quality outlets, the quality of empirical results seems of sufficient interest to justify aiming for a top-level publication, aiming at least at submission to the European Sociological Review (ranked 11/138 in Soc). The third paper “Changing industry rents in the financial sector: technology, work organization or wage setting institutions?” is expanded in coverage, using linked employer-employee data work now continued under DFG funding

Key Findings

The current debate over distributional implications of the crisis-ridden Economic and Monetary Union (EMU) is heavily biased towards inter-national accounts. Little attention is paid to who wins and who loses out intra-nationally. I argue that in Germany the EMU has reinforced dualization, the insider-outsider cleavage in the country’s welfare state and production model. To scrutinize this argument, I analyze longitudinal linked employer-employee data (N>9.7 mio) with high-dimensional fixed effects models and pursue a mechanistic three-step identification strategy: First, I illustrate how the introduction of the Euro distorted real interest and exchange rates within the Eurozone. Second, I demonstrate how these imbalances redistributed rents from the domestic sector, in particular from construction, to the core manufacturing industry. Third, I show how this shift in industry rents reverberated to the wage distribution and increased inequality. The study contributes to resolve the puzzle why wage inequality between low and median earners has increased in Germany whereas it decreased in countries similarly exposed to technological change and globalization

Related Published Papers

Author/s Title Year Research Area Keywords
Fabian Ochsenfeld Mercantilist dualization: the introduction of the euro, redistribution of industry rents, and wage inequality in Germany, 1993–2008
Socio-Economic Review
2018 Corporate Finance distribution, manufacturing, causal mechanisms, political economy, Germany, Europe
Fabian Ochsenfeld The Relational Nature of Employment Dualization: Evidence from Subcontracting Establishments
European Sociological Review
2018 Corporate Finance

 

Back