Swedish data on workers matched with firms’ balance‐sheet reports are used to examine the relation between wages and firms’ ability to pay. Results indicate that experienced and highly educated workers are sorted into profitable firms. Wages are positively correlated with profits and the capital‐labor ratio, after controlling for worker quality, degree of effort supervision, job characteristics, local unemployment, firms’ employment history, and employer size. Lester’s “range of pay” due to rent sharing is around 12%–24% of the mean wage in Sweden, which is close to the estimates for the United States and United Kingdom.

We study the effects of surname change to Swedish‐sounding or neutral names on earnings for immigrants from Asian/African/Slavic countries. To estimate this effect, we exploit the variation resulting from different timing of name changes across individuals during the 1990s. The results imply that there is a substantial increase in annual earnings after a name change, no effects on earnings prior to a name change, and no positive general effects of a new name for other groups that renounced a foreign name. Based on these findings, we argue that these effects are due to name change as a response to discrimination.