An engine of (pay) growth? Productivity and wages in the UK auto industry

To what extent do identical workers in an industry benefit from productivity growth in the same industry? We study this question in the context of the UK auto industry which experienced a thirteen-fold increase in output per worker between 1980 and 2018. Over the same period, auto workers saw substantially stronger hourly wage growth than workers in other manufacturing industries. Controlling for unobserved worker heterogeneity, the auto wage premium over other manufacturing workers doubled from 8% in the 1980s to 17% in the 2010s, while the manufacturing premium over the rest of the economy remained roughly stable at 5%. Interpreted through the lens of a rent sharing model, we estimate that 63% of the increase in the raw firm-level auto wage premium can be accounted for by strong productivity growth. In contrast, differential bargaining power between auto workers cannot account for these changes.