Academic journal article Economic Inquiry

Testing Rent Sharing Using Individualized Measures of Rent: Evidence from Domestic Helpers

Academic journal article Economic Inquiry

Testing Rent Sharing Using Individualized Measures of Rent: Evidence from Domestic Helpers

Article excerpt


The market for resident domestic helpers offers a rare opportunity where the surplus from employment relationship can be quantitatively measured for each individual employee. Using the difference between employer's cost of time and employee's wage as a measure of rent, it is found that wages for domestic helpers are positively related to rent. However the apparent sharing of rent is better explained by matching than by efficiency wage models. Rent sharing is observed even in households where monitoring or turnover costs are low. Rent sharing is not observed among newly arrived foreign domestic helpers, whose ability remains to be revealed. (JEL J41)


This article studies the pattern of wages for resident domestic helpers in Hong Kong. No one would lure economists into paying attention to this arcane labor market were it not for one feature of the market for housework: A measure of employment rent can be plausibly assigned to each individual employee. Having an individualized measure of rent at the worker level (instead of a general measure at the firm level) will shed considerable light on the large and growing literature of rent sharing in wage determination.

Since 1975, the Hong Kong government has allowed the importation of foreign domestic helpers into the territory. Because of large wage differences between Hong Kong and some of its Asian neighbors, the program is highly popular. The Census and Statistics Department [1995] estimates that 92,700 households, or 5.6% of all domestic households in Hong Kong, employed domestic helpers in 1993. The figure is even more dramatic for high-income households: 44% of households with monthly income of over HK$50,000 had one or more domestic helpers. [1]

One consequence of the availability of market-procured housework is that women who employ helpers have more time for market work. In Suen [1994], I estimate that the probability of labor force participation among married women who had domestic helpers is 22 percentage points higher than that for women without domestic help, other things equal. If hiring a helper enables a married woman to engage in market work, then a plausible measure for the "rent" or surplus from this employment relationship is the difference between the woman's wage and her helper's wage. If a woman with a domestic helper decides to stay home nonetheless, the size of the surplus can be measured by the difference between the shadow value of leisure and the helper's wage. Wage information is readily available from census data, and shadow wages can be estimated using standard techniques. This article utilizes this rare opportunity to impute a measure of rent for each employer-employee pair. Studying how the wages of domestic helpers vary wi th the magnitude of rent will provide direct evidence for rent sharing in the labor market.

There is a large literature which documents the fact that the characteristics of the employer, such as industry affiliation and firm size, are significantly correlated with the employees' wages. Krueger and Summers [19881, Brown and Medoff [1989], Groshen [1991], Helwege [1992], and many others offer convincing evidence that inter-industry wage differentials and employer wage effects exist. Rent sharing is often invoked to account for such wage patterns. However, few studies in the literature offer a plausible account for the existence of or a measure for the size of the "rent" that is supposedly shared. [2] At the industry level, Dickens and Katz [1987] use variables such as concentration ratio, capital-labor ratio, research and development expenditures, and average rate of return on capital as covariates in wage equations. These variables provide at best an indirect and error-prone measure of employment rent. Campbell [1993] makes use of firm level characteristics instead of industry characteristics, but t here is no information on profits in his firm level data. …

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