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

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. This ﬁgure plots event-study estimates and 95% conﬁdence intervals separately for workers who are union members and workers who are not union members, where events are manager transitions from a non-business manager to a business manager in Denmark. The dependent variable is log annual wage. Standard errors are clustered at the ﬁrm level. This ﬁgure plots event-study estimates and 95% conﬁdence intervals, where events are manager transitions from a non-business manager to a business manager in Denmark. The regression controls for ﬁrm ﬁxed eﬀects, initial size quintile by year ﬁxed eﬀects, region × year ﬁxed eﬀects and industry × year ﬁxed eﬀects, and observations are weighted by ﬁrm employment. The dependent variable is the share of workers at the ﬁrm who are union members. Standard errors are clustered at the ﬁrm level. This ﬁgure plots event-study estimates and 95% conﬁdence intervals, where events are manager transitions from a non-business manager to a business manager in Denmark. The sample includes ﬁrms that have non-business managers in all years, and ﬁrms that have one non-business to business manager transition event during the sample period. All regressions control for ﬁrm ﬁxed eﬀects, initial size quintile by year ﬁxed eﬀects, region × year ﬁxed eﬀects, industry × year ﬁxed eﬀects, ﬁrm × worker ﬁxed eﬀects, quadratic in experience, and union and marital status dummies. The dependent variable is the value of stock option payments. Standard errors are clustered at the ﬁrm level. This ﬁgure plots event-study estimates and 95% conﬁdence intervals, where events are placebo manager transitions from a non-business manager to a non-business manager in Denmark. The dependent variable is the share of workers that quit the ﬁrm to join another ﬁrm or become unemployed in the following year. All regressions include ﬁrm ﬁxed eﬀects, industry × year ﬁxed eﬀects, state(region) × year ﬁxed eﬀects, and initial size quintile by year ﬁxed eﬀects, and observations are weighted by employment. Standard errors are clustered at the ﬁrm level.