Rent sharing as part of incentive payments and recruitment

The aim of this paper is to examine rent sharing under a heterogeneous workforce using linked employer-employee Finnish data in 1987-1998 located in Statistics Finland. It is shown that rent sharing moderates firm-level wages and that the highly educated workers are the main targets. In non-R&D-intensive firms, flexible labour supply encourages the use of rent sharing. Rent sharing is effectively used to hire new workers or to lower unwanted job mobility. However, rent sharing is more common in R&D-intensive firms. In R&D intensive firms rent sharing is more explained by human capital accumulation and targeted at experienced workers. Flexible technology in the R&D intensive firms also leads to the substitution of rent sharing for monitoring costs.