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Eclipse of Rent-Sharing: The Effects of Managers' Business Education on Wages and the Labor Share in the US and Denmark

December 2022

Working Paper Number:

CES-22-58

Abstract

This paper provides evidence from the US and Denmark that managers with a business degree ('business managers") reduce their employees' wages. Within five years of the appointment of a business manager, wages decline by 6% and the labor share by 5 percentage points in the US, and by 3% and 3 percentage points in Denmark. Firms appointing business managers are not on differential trends and do not enjoy higher output, investment, or employment growth thereafter. Using manager retirements and deaths and an IV strategy based on the diffusion of the practice of appointing business managers within industry, region and size quartile cells, we provide additional evidence that these are causal effects. We establish that the proximate cause of these (relative) wage effects are changes in rent-sharing practices following the appointment of business managers. Exploiting exogenous export demand shocks, we show that non-business managers share profits with their workers, whereas business managers do not. But consistent with our first set of results, these business managers show no greater ability to increase sales or profits in response to exporting opportunities. Finally, we use the influence of role models on college major choice to instrument for the decision to enroll in a business degree in Denmark and show that our estimates correspond to causal effects of practices and values acquired in business education--rather than the differential selection into business education of individuals unlikely to share rents with workers.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the text, highlighting the most significant topics and trends. This approach not only enhances searchability but provides connections that go beyond potentially domain-specific author-defined keywords.
:
economist, endogeneity, export, executive, manager, employ, managerial, employed, accounting, exporter, employment growth, employment estimates, retirement, management, hiring, pension, rent

Tags Tags are automatically generated using a pretrained language model from spaCy, which excels at several tasks, including entity tagging.

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:
Standard Statistical Establishment List, Ordinary Least Squares, University of Maryland, Longitudinal Business Database, North American Industry Classification System, Longitudinal Employer Household Dynamics, Business Register, Census Bureau Disclosure Review Board, Harvard Business School, Disclosure Review Board

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