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Higher wages and capital intensity: a closer look

Author

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  • Matti Viren

    () (Department of Economics, University of Turku)

Abstract

This paper focuses on the relationship between higher wages and capital intensity. The relationship itself is by no means a novel finding but we try to provide a meaningful theoretical explanation for the relationship and empirical evidence on its exact nature. Our explanation is the outcome of the wage bargaining process in the case of capital-intensive companies. They are more vulnerable to strike threat than companies that have a small capital stock and thus they may more easily give in for union wage demand. In other words, the bargaining power of unions is related to the capital-labor ratio. This paper provides some tests for these hypotheses with an extensive panel data for Finnish unincorporated enterprises and companies. The results show the relationship between higher wages and capital intensity and very strong and it applies to all sorts of companies and, finally, and it is consistent with the wage bargaining hypothesis.

Suggested Citation

  • Matti Viren, 2006. "Higher wages and capital intensity: a closer look," Discussion Papers 13, Aboa Centre for Economics.
  • Handle: RePEc:tkk:dpaper:dp13
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    File URL: http://www.ace-economics.fi/kuvat/ACE13%20Viren%20valmis.pdf
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    References listed on IDEAS

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    1. John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
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    5. 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.
    6. repec:lsu:lsuwpp:2003-12 is not listed on IDEAS
    7. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
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    13. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
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    More about this item

    Keywords

    wages; bargaining; wage distribution; panel data;

    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

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