Wages, profits and the international portfolio puzzle

“…11 We follow the standard approach of constructing 5-year period averages so as to minimize business cycle effects and the well-known procyclicality of profits and wages (see Bottazzi et al, 1996). 12…”

Section: Datamentioning

confidence: 99%

'Excessive' wages and the return on capital

Katsimi¹,

Kalyvitis²,

Moutos³

2011

Cambridge Journal of Economics

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Received wisdom suggests that "excessive" wages, defined as the part of real wages that do not follow labour productivity developments, are adversely associated with the return on capital. This paper argues that excessive wages and profits are better thought as responses to changes in the economic, political and institutional environment and there is no a priori reason for a negative relationship between them. We thus investigate whether there is a causal effect of excessive wages on capital return using aggregate panel data for 19 OECD countries for the period 1970-2000. We account for the endogeneity of excessive wages by exploiting variations in institutional and labour market characteristics. Our main finding is that excessive wages do not affect the return on capital. This result remains robust to alternative empirical specifications and to alternative definitions of profitability and excessive wages, and questions the standard advice by international economic organizations on wage moderation. JEL classification: E24, E25

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“…In part this home bias may reflect that (small) investors are less well informed about foreign than about domestic investment opportunities (see Gordon and Bovenberg (1996) and Westerhout (2002)). It may also reflect that returns on domestic equity tend to be negatively correlated with domestic wage rates, giving domestic workers a hedging motive to invest in domestic rather than foreign shares, as argued by Bottazzi et al (1996).…”

Section: Can Taxes On Saving Be Enforced?mentioning

confidence: 99%

Can Capital Income Taxes Survive? And Should They?

Sørensen¹

2007

CESifo Economic Studies

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Wages, profits and the international portfolio puzzle

Cited by 135 publications

References 22 publications

Can trade costs in goods explain home bias in assets?

Can trade costs in goods explain home bias in assets?

'Excessive' wages and the return on capital

Can Capital Income Taxes Survive? And Should They?

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