Do Operating Profits Induce a Wage Premium Equally Shared among Employees Earning High or Low Incomes?

Jarle Aarstad,Olav A Kvitastein

doi:10.3390/economies9020081

Abstract

Panel data show that between 2001 and 2014 Norwegian industries’ increasing aggregated operating profits per employee increased average wages and wage inequality. The data imply that increasing profits, perhaps unsurprisingly, induce a wage premium. The data further imply that employees earning high incomes at the outset had the highest wage increase percentage-wise. Decreasing operating profits per employee had opposite but less robust effects on average wages and wage inequality. Panel data Granger causality tests finally showed that average wages, but not wage inequality, reversely and positively affect operating profits per employee.

Highlights

It is perhaps not far-fetched to assume that increasing operating profits induce a wage premium, as indicated by empirical research (Arai 2003; Arai and Heyman 2009; Blanchflower et al 1996; Estevao and Tevlin 2003; Knight and Li 2005), but will it be shared among employees earning high or low incomes at the outset? In other words, do, for instance, employees earning high incomes at the outset receive a higher wage premium percentage-wise than their colleagues earning lower wages, or is it the other way round?
Assuming that increasing profits induce a wage premium, and percentage-wise, among employees earning high incomes at the outset, will the reverse happen if the operating profits decrease? These are some of the questions we address in this commentary, and, overall, we aim to assess if increasing or decreasing operating profits per employee affects average wages and wage inequality
Using Granger causality tests, we aim to assess if average wages and wage inequality reversely affect operating profits per employee

Summary

Introduction

It is perhaps not far-fetched to assume that increasing operating profits induce a wage premium, as indicated by empirical research (Arai 2003; Arai and Heyman 2009; Blanchflower et al 1996; Estevao and Tevlin 2003; Knight and Li 2005), but will it be shared among employees earning high or low incomes at the outset? Similar research at a national level has shown that increasing economic inequality decreases national growth and development (Berg et al 2018; Voitchovsky 2005), but the effect is the opposite if the inequality increases among those with the highest income at the outset (Voitchovsky 2005) The latter finding is in line with studies asserting that technological progress, capital accumulation, and revenues from exports of natural resources propel economic modernisation (Sadik-Zada 2020; Sadik-Zada 2021). We have noted that research indicates a positive link between profitability in the economy and wages earned by the employees (Arai 2003; Arai and Heyman 2009; Blanchflower et al 1996; Estevao and Tevlin 2003; Knight and Li 2005)

Objectives

Methods

Results