Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

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

Mahmood Arai ()
Additional contact information
Mahmood Arai: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

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

JEL-codes: D31; J31

27 pages, April 30, 1999

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wp99_03.pdf PDF-file 
wp99_03tab.pdf PDF-file Firm data and tables

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