Firm Profitability, Regional Unemployment and Human Capital in Wage Determination.
Johansen, K. (Department of Economics, NTNU), Ringdal, K., Thøring, TA.
Journal of Applied Economics (2001: no 1)
This paper presents an analysis of wage formation in the Norwegian private sector using data for individual workers matched with firm level information and regional unemployment. A key issue is to test whether or not firm specific variables affect individual wages after controlling for individual specific factors and working conditions. Our results imply positive effects of firm specific profitability and firm size. The elasticity of wages with respect to value added per worker and firm size is 5% and 3.3%, respectively. We also report empirical evidence of a downward sloping regional wage curve, while there is no support of the hypothesis of compensating wage differentials. Since we use data for three levels of aggregation, the OLS estimates of the standard errors are downward biased. Therefore, we also report results using a random effects model, taking the multi-level structure of our data into account.