ABSTRACT
It is claimed by many advocates of participatory industrial democracy that, in an environment where workers identify themselves with the firm due to their direct participation in decision making, smaller skill differentials will not diminish work effort, responsibility, and the desire for advancement in one’s career. There is considerably less reliance upon personal incentives in a participatory work environment. The labor school of wage determination applies the neoclassical static equilibrium analysis of capitalism to the Yugoslav firm, to show that specific differentials are created in the framework of self-management. The capital school, represented by Vanek, Jovicic, Milenkovitch, and Staellers, links the differences in incomes and high capital-labor ratios in Yugoslavia not with the imperfections of the labor market or with the specific property rights of the Yugoslav firm, but rather with the imperfections of the capital market. According to Vanek, the tendency for excessive capital intensity is exacerbated by some specific state policies intended to prevent excessive income inequalities.
