Research Discussion Papers, Bank of Finland
No 5/2005:
Why do capital intensive companies pay higher wages?
Matti Virén ()
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.
Keywords: wages; bargaining; wage distribution; panel data; (follow links to similar papers)
JEL-Codes: J31; J51; (follow links to similar papers)
27 pages, February 13, 2005
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