Why Do Capital Intensive Companies Pay Higher Wages?

Bank of Finland Discussion Paper No. 5/2005

27 Pages Posted: 18 Aug 2005

See all articles by Matti Viren

Matti Viren

Bank of Finland - Research

Date Written: May 2005

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

JEL Classification: J31, J51

Suggested Citation

Viren, Matti, Why Do Capital Intensive Companies Pay Higher Wages? (May 2005). Bank of Finland Discussion Paper No. 5/2005, Available at SSRN: https://ssrn.com/abstract=782666 or http://dx.doi.org/10.2139/ssrn.782666

Matti Viren (Contact Author)

Bank of Finland - Research ( email )

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