Rent sharing and worker-firm specific investments

Speaker:Sebastian Buhai (Stockholm University-SOFI).  https://www.sebastianbuhai.com/

Abstract: This paper develops microfoundations for insider bargaining and incumbent-worker rents under imperfect substitutability with new hires. Incumbents accumulate relationship-specific capital; firms share quasi-rents to deter incumbent separations and sustain tacit knowledge transfer to new employees. The model yields two key predictions: within firms, worker earnings and retention increase with seniority; and the seniority–wage slope is a sufficient statistic for the return to the extent of worker–firm–specific investment. Using Danish and Portuguese linked employer–employee data, we show that conditioning on an estimated structural measure of relationship-specific investment eliminates seniority’s apparent role in transmitting firm shocks to wages, identifying seniority as a proxy rather than a model primitive. We thus link insider bargaining to observable seniority profiles via a transparent sufficient statistic, delivering a unified theory-and-evidence account of rent sharing grounded in worker–firm specific investments.