Excessive Wages and the Return on Capital
Received wisdom suggests that ÃƒÂ¢Ã¯Â¿Â½Ã¯Â¿Â½excessiveÃƒÂ¢Ã¯Â¿Â½Ã¯Â¿Â½ wages, defined as the part of real wages that do not follow labour productivity developments, are adversely associated with the return on capital. This paper argues that excessive wages and profits are better thought as responses to changes in the economic, political and institutional environment and there is no a priori reason for a negative relationship between them. We thus investigate whether there is a causal effect of excessive wages on capital return using aggregate panel data for 19 OECD countries for the period 1970-2000. We account for the endogeneity of excessive wages by exploiting variations in institutional and labour market characteristics. Our main finding is that excessive wages do not affect the return on capital. This result remains robust to alternative empirical specifications and to alternative definitions of profitability and excessive wages, and questions the standard advice by international economic organizations on wage moderation.
|Date of creation:||10 Jan 2011|
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- Philip Du Caju & François Rycx & Ilan Tojerow, 2011.
"Inter‐Industry Wage Differentials: How Much Does Rent Sharing Matter?,"
University of Manchester, vol. 79(4), pages 691-717, 07.
- Du Caju, Philip & Rycx, François & Tojerow, Ilan, 2009. "Inter-industry wage differentials: how much does rent sharing matter?," Working Paper Series 1103, European Central Bank.
- François Rycx & Philip Du Caju & Ilan Tojerow, 2009. "Inter-Industry Wage Differentials :How much does rent sharing matter ?," ULB Institutional Repository 2013/245783, ULB -- Universite Libre de Bruxelles.
- François Rycx & Philip Du Caju, 2011. "Inter-industry wage differentials: How much does rent sharing matter?," ULB Institutional Repository 2013/245697, ULB -- Universite Libre de Bruxelles.
- Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Inter-industry wage differentials: How much does rent sharing matter?," ULB Institutional Repository 2013/138898, ULB -- Universite Libre de Bruxelles.
- Philip Du Caju & François Ryckx & Ilan Tojerow, 2009. "Inter-industry wage differentials : How much does rent sharing matter ?," Working Paper Research 180, National Bank of Belgium.
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