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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 1999:3:
Wages, Profits and Capital Intensity: Evidence from Matched Worker-Firm Data

Mahmood Arai ()

Abstract: In this paper I use data on workers matched whit firms balance-sheet reports 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 significantly correlated to profits and capital-labor ratio, after controlling for workers quality (observed characteristics as well as time-invariant individual effects), job characteristics, local unemployment, firms´ employment history and employer size. These are mainly within industry effects attributed to wage determination at the firm-level. The conclusion is that previous studies based on industry data substantially underestimate the impacts of profits on wages.

Keywords: wages; profits; capital intensity; rent-sharing; (follow links to similar papers)

JEL-Codes: D31; J31; (follow links to similar papers)

27 pages, April 30, 1999

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