Why do capital intensive companies pay higher wages?

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Why do capital intensive companies pay higher wages?

Author Info

Matti Virén (Bank of Finland)

Abstract

An obvious answer to this question is the capital-skill complementarity hypothesis originally proposed by Zwi Griliches (1969). But the relatively poor performance of this hypothesis suggests that other explanations are needed. Here we consider the labour union behaviour in the wage bargaining process as such an alternative. The explanation is based on the observation that capital intensive companies are more vulnerable to strike threats and may thus more easily give in for union wage demand. Thus, the bargaining power of unions is related to the capital-labour ratio. This paper provides some tests for these hypotheses with panel data for Finnish companies. The results give support to the wage bargaining hypothesis.

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Publisher Info
Paper provided by EconWPA in its series Labor and Demography with number 0508014.

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Length: 27 pages
Date of creation: 31 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0508014

Note: Type of Document - pdf; pages: 27. Bank of Finland Research Discussion Papers 5/2005
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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Devereux, Michael B. & Lockwood, Ben, 1991. "Trade unions, non-binding wage agreements, and capital accumulation," European Economic Review, Elsevier, vol. 35(7), pages 1411-1426, October. [Downloadable!] (restricted)
Other versions:
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Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November. [Downloadable!] (restricted)
Graziella Bertocchi, 2003. "Labor Market Institutions, International Capital Mobility, and the Persistence of Underdevelopment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 637-650, July. [Downloadable!] (restricted)
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Other versions:
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Other versions:
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Other versions:
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- Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining Movements in the Labor Share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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Konings, Jozef & Walsh, Patrick P, 1994. "Evidence of Efficiency Wage Payments in UK Firm Level Panel Data," Economic Journal, Royal Economic Society, vol. 104(424), pages 542-55, May. [Downloadable!] (restricted)
Other versions:
- J Konings & Patrick Paul Walsh, 1993. "Evidence of Efficiency Wage Payments in UK Firm Level Panel Data," CEP Discussion Papers dp0138, Centre for Economic Performance, LSE.
Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.

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Virén , Matti, 2005. "Why do capital intensive companies pay higher wages?," Research Discussion Papers 5/2005, Bank of Finland. [Downloadable!]

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