Who benefits from firm success? Heterogeneous rent-sharing in New Zealand

See a summary version of this paper by the Ministry of Business, Innovation and Employment.

Do people from different demographics in Aotearoa New Zealand get equal slices of the pie when their workplace passes profits onto workers as higher wages? Our research finds women, Māori or Pacific peoples and those with lower-level qualifications miss out on higher wages from workplace profits. But people with the highest qualifications, longest tenure and our majority ethnicities benefit most from rent sharing. 

Inclusive growth – economic growth that delivers benefits to all members of society – is a hot topic right now. Many countries around the world are grappling persistent inequality and disadvantage.

In this paper, we continue our examination of inclusive growth at the firm level, looking at which workers benefit most from improvements in firm performance in Aotearoa. We call this relationship between firm performance and wages rent sharing - when firms with higher performance pass some of their profits onto workers as higher wages. This gives us more insight into the micro-level drivers behind the gender wage gap, ethnic wage gaps and other labour market disparities in Aotearoa.

We test for differences in rent sharing across a range of worker and firm characteristics (including gender, ethnicity, age, qualifications, tenure, firm size, firm age, and industry).

We find between 20% and 30% of workers are in firms that don’t have sufficient profits to pass onto workers. These workers are concentrated in the hospitality, administrative services, and retail industries and are more likely to be women, Māori or Pacific peoples and have lower-level qualifications.

We find those with the highest qualifications, longest tenure and majority ethnicities benefit most from rent sharing. We find no differences in rent sharing because of firm size or firm age.

The auxiliary finance and professional, scientific, and technical services sectors share the most of their profits with workers, while grocery retailing, food and beverage manufacturing and utilities sectors share the least. Most other sectors are similar in rent sharing.

DOI: doi.org/10.29310/WP.2022.03

Citation

Allan, Corey and Dave Maré. 2022. “Who benefits from firm success? Heterogeneous rent-sharing in New Zealand". Motu Working Paper 22-03. Motu Economic and Public Policy Research. Wellington, New Zealand.