Real wages,inflation and labour productivity in Australia

This article presents an analysis of real wages, inflation and labour productivity interrelationships using cointegration, Granger causality and, most importantly, structural change tests. Applications of tests to Australian data over the 1965 to 2007 period corroborate the presence of a structural break in 1985 and show that a 1% increase in manufacturing sector real wages led to an increase in manufacturing sector productivity of between 0.5% and 0.8%. Comparable estimates for the effect of inflation on manufacturing sector productivity have limited statistical significance. Granger causality test results suggest that real wages and inflation both Granger cause productivity in the long run.     

Industry profit margins and concentration: evidence from UK manufacturing

This paper examines the determination of UK manufacturing industry profit margins using a panel of data from 1980 to 1991. In particular, we test whether industry concentration is important in shaping margins. Our results indicate that for both pooled cross-section data and for fixed effects models there is a robust positive correlation between industry margins and market concentration. However, the formulation of the margin matters for establishing this association. For those margins where a net revenue measure is used in the denominator of the margin then we are able to isolate the predicted relationship. However, for those margins that use gross revenue in the denominator the matter is more complex. Without controlling for a measure of material costs in the estimating equations then a simple concentration effect cannot be isolated.     

Low skill wages and mismeasured inflation

The current literature presents evidence that the real wage of male workers at the 10th percentile of the wage distribution has fallen since 1970. Yet, contributions within this literature deflate nominal wages using a mismeasured deflator. Another strand of literature documents that the mismeasurement of the deflator is sizable, with recent estimates exceeding0.6 percentage points per year. In this paper, I adjust the deflator and reestimate the implied evolution of male low skill wages. This simple exercise implies that male low skill wages were about 15 log-points higher in 2013 than in 1970.     

Trade,skill-biased technical change and wages in Mexican manufacturing

This article looks at the relative importance of competing stories, particularly trade liberalization and skill-biased technical change, to explain changes in the skill premium and the real wages of unskilled and skilled workers in Mexican manufacturing using plant-level data. The channel through which technical change is observed is changes in the domestic price of machinery and equipment due to the availability of new and cheaper machines. The analysis also looks at trade-induced skill-biased technical change by taking into account changes in the price of machinery and equipment caused by changes in the tariff rate specific to machinery and equipment. Instrumental variables, including the price of machinery and equipment in the United States, are used to determine causality between the above effects and wages. Thus, the article provides evidence for some recent findings in the literature that link trade liberalization, skill-biased technical change occurring through technology embodied in machines and increases in the skill premium.     

Real business cycles, sticky wages or sticky prices? The impact of technology shocks on US manufacturing

In this paper, we examine empirically the predictions of a range of theoretical models which give a prominent role to technology shocks in explaining business cycles. To this end, we estimate (4-digit SIC) industry-level VAR models for US manufacturing using real output, the real wage and utilization corrected measures of technology and labor input. Our results support both sticky-wage DGE and RBC models over sticky-price DGE models. Moreover, they cast some doubt on the importance of technology shocks as propulsive mechanism for business cycles at the industry level.     

Real wages,real interest rates,and the Phillips curve

This article argues that any analysis of a Phillips curve should include the real interest rate in addition to inflation and real wages as any changes in the interest rate changes the labour–capital input mix in the production process leading to a change in the level of employment in the economy. To justify this argument a Phillips curve model is developed, which includes the real interest rate in addition to inflation and real wages. After the diagnosis of the time series properties of the data, an error correction model is developed and estimated using a set of US annual data from 1948 to 1996. The estimated parameters of the model do suggest that one should really take into consideration of the real interest rate while analysing the Phillips curve. A non-nested test (F-test) also suggests that the Phillips curve model with real interest rate as an additional variable performs better than the conventional method that does not include the real interest rate.     

Advanced technology,innovation, wages and productivity in the Canadian manufacturing sector

In this article, we used a two-step estimation procedure, where in the first stage, the number of advanced manufacturing technologies used in the firm was estimated using a negative binomial regression, and the expenditure on process and product innovation was estimated using a type II Tobit procedure. In the second stage, we used the predicted values from the first stage in wage and labour productivity equations. The data were from the 2009 Survey of Innovation and Business Strategy which was linked to the General Index of Financial Information (2004–2009) and the Longitudinal Employment Analysis Program (2004–2009). The implications for policy are that we should not expect large aggregate effects of innovation on productivity and employment. We should expect wage increases and productivity increases, with process innovation. We should also expect moderate wage increases with product innovation, and contrary to process innovation, the effect on productivity of product innovation was negative.     

Real wages and the business cycle in Germany

This article establishes stylized facts about the cyclicality of real consumer wages and real producer wages in Germany. As detrending methods, we apply the Beveridge–Nelson decomposition, the Hodrick–Prescott filter, the Baxter–King filter, and the structural time series model. The detrended data are analyzed both in the time domain and in the frequency domain. The great advantage of an analysis in the frequency domain is that it allows to assess the relative importance of particular frequencies for the behavior of real wages. We propose to use the phase angle as a suitable measure to get detailed information about the correlation and the lead–lag behavior of real wages relative to GDP at different frequencies. In the time domain, we find that both real wages display a procyclical pattern and lag behind the business cycle. In the frequency domain, the consumer real wage lags behind the business cycle and shows an anticyclical behavior for shorter time periods, whereas for longer time spans a procyclical behavior can be observed. For the producer real wage, however, the results in the frequency domain remain inconclusive.     

Real wages and labor-saving technical change: evidence from a panel of manufacturing industries in mature and labor-surplus economies

Recent theories have provided a persuasive account of a key stylized fact of mature economies: the common long-run trends of average real wages and labor productivity, and the ensuing stationarity of functional distribution. Central to these theories is the notion of directed technical change, which claims that a rise in labor costs sparks the adoption of labor-saving innovations. This paper empirically examines a core prediction of these theories, namely that shocks to functional distribution elicit compensatory adjustments in real product wages and labor productivity. Using two disaggregated data-sets of manufacturing industries (EU-Klems and Unido), I find evidence of cointegration and two-way, long-run Granger causality between these two variables. These findings suggest that directed technical change is indeed key for producing stationarity in functional distribution, and they complement the recent empirical literature on distributive cycles and productivity growth. Preliminary evidence from the Unido data-set also suggests the importance of directed technical change in developing countries. To illuminate the empirical procedure, I present a theoretical model of growth and distribution with directed technical change.     

Has liberalization affected profit margins in Indian Industry?

In this article, we analyse the determinants of firm‐level profit margins in Indian manufacturing. The model we estimate is rich in its dynamic characterization allowing as it does for lagged terms, trend movements, business cycle effects and a structural break in 1991. We hypothesize that the reforms undertaken by the government in 1991 constitute a structural break that influences a firm's independence to react to other firms as well as the extent of competition faced by these firms. Inserting this into the standard industrial organization model of profits, we obtain a dynamic market model. Estimating this model for 1980–98, we find that the 1991 reforms did have a significant impact on profit margins in Indian industry. The reforms have worked through their impact on a firm's behavioural variables – advertising, Research and Development (R&D), capital–output ratios and managerial remuneration – though the precise variables that were significant varied from sector to sector. We find that relatively inefficient firms make significantly lower profits than others both before and after the liberalization as expected.     

Budget deficits,money growth and inflation: the Turkish evidence

The paper investigates the long-run relationships between budget deficits, inflation and monetary growth in Turkey considering two alternative trivariate systems corresponding to the narrowest and the broadest monetary aggregates. While the joint endogeneity of money and inflation rejects the validity of the monetarist view, lack of a direct relationship between inflation and budget deficits makes the pure fiscal theory explanations illegitimate for the Turkish case. Consistent with the policy regime of financing domestic debt through the commercial banking system, budget deficits lead to a growth not of currency seigniorage but of broad money in Turkey. This mode of deficit financing, leading to the creation of near money and restricting the scope for an effective monetary policy, may not be sustainable, as the government securities/broad money ratio cannot grow without limit.     

The effect of real wages and inflation on labour productivity in Malaysia

This study examines the relationship between labour productivity, real wages and inflation in Malaysia using the bounds testing approach to cointegration and also the Granger causality test. The findings of this study suggest that inflation is negatively related to labour productivity. However, the effect of real wages on labour productivity is non-linear and the two have an inverted-U shape relationship. From a policy viewpoint, the Granger causality test shows that real wages Granger-cause labour productivity, but there is no evidence of reversal causation. Hence, the Malaysian dataset supports the claims by the efficiency wage theory. Moreover, we find that inflation and labour productivity in Malaysia have bilateral causality in the short- and the long-run.     

Real wages,quantity constraints and equilibrium unemployment: Belgium, 1955–1988

This paper examines the determinants of equilibrium wage and unemployment rates in Belgium within the framework of a quantity rationing, right-to-manage model with decentralised wage-setting. Empirical results are obtained by first using the Johansen maximum-likelihood procedure for the analysis of cointegration among the variables of interest. The information from this stage is then used to estimate a three equation econometric model explaining the wage share, the unemployment rate and the capital gap. The slowdown in world trade is depicted as the most important factor explaining the rise in unemployment in Belgium, with dampening effects due to wage control policies imposed in the eighties. Because we obtain only two cointegrating relations, for three endogenous variables, our results are compatible with the hypothesis of path dependency and multiple equilibria.     

Real and nominal UK interest rates,ERM membership,and inflation targeting

This article estimates a two-factor term structure model to analyze the time-varying mean-reverting levels of the UK real and nominal short-term interest rates. Before and during British membership in the ERM, the mean-reverting levels of real and nominal short rates have a strong negative correlation. Afterward, when the UK implemented an inflation targeting policy, the mean-reverting levels have a strong positive correlation. The article also reports empirical evidence of a link between the time-varying central tendencies and inflation in the disinflation period before the implementation of the inflation targeting policy.     

Search, money, and inflation under private information

I study monetary exchange and inflation when buyers have private information about their willingness to pay for certain goods. Introducing imperfect information in the Lagos-Wright [A unified framework for monetary theory and policy analysis, J. Polit. Economy 113(3) (2005) 463-484] economy shows that the existence of monetary equilibrium is a more robust feature of the environment. In general, my model has a monetary steady state in which only a proportion of the agents hold money. Agents who do not hold money cannot participate in trade in the decentralized market. The proportion of agents holding money is endogenous and depends (negatively) on the level of expected inflation. As in Lagos and Wright's model, in equilibrium there is a positive welfare cost of expected inflation, but the origins of this cost are very different.     

Sticky wages,efficiency wages,and market processes

Work on this article was supported by a grant from the Research Committee of the College of Business Administration, University of South Florida.     

Market wages,reservation wages,and retirement decisions

The paper is an empirical cross-section study of the retirement decisions of American white men between the ages of 58 and 67, predicated on the theoretical notion that an individual retires when his reservation wage exceeds his market wage. Reservation wages are derived from an explicit utility function in which the most critical taste parameter is assumed to vary both systematically and randomly across individuals. Market wages are derived from a standard wage equation adjusted to the special circumstances of older workers. The two equations are estimated jointly by maximum likelihood, which takes into account the potential selectivity bias inherent in the model (low-wage individuals tend to retire and cease reporting their market wage). The model is reasonably successful in predicting retirement decisions, and casts serious doubt on previous claims that the social security system induces many workers to retire earlier than they otherwise would. The normal effects of aging (on both market and reservation wages) and the incentives set up by private pension plans are estimated to be major causes of retirement.     

Growth of factor productivity in Turkish manufacturing industries

This paper presents estimates of rates of total factor productivity (TFP) growth for two-digit manufacturing industries in Turkey over the period 1963 to 1976. Estimates are presented separately for the public and private enterprises in each industry. It is shown that periods of slower productivity growth coincided with periods of a more stringent traderegime. It is also shown that, despite the fact that the rate of growth of TFP was about the same in the public and private sectors, absolute levels of inputs in the public sector enterprises are much higher than in their private sector counterparts.     

Training,productivity and wages: An investigation of China's manufacturing enterprises in a privatization era

We estimated a structural model of production and wage determination in which labour quality can be affected by a firm's training decision using data of China's manufacturing enterprises in an era of privatization (2004–2007). Training increased both productivity and wages, but the former increased more, which explained the voluntary provision of on-the-job training. Our results also indicate that state-controlled enterprises' investment in training could be both privately and socially efficient; unions played a role in promoting training; it might be more privately and socially efficient for manufacturing firms to prioritize training resources to lower-educated, female and junior workers, if they had not done so, during privatization.     

Dynamic technological learning trends in Turkish manufacturing industries

Efficient development of industries requires a broad range of technological capabilities which can be acquired only by a long process of learning. Continuous measuring and monitoring of the ever-changing technological learning would be useful for building technological capability and managing technological policies. Nevertheless, research on how to measure the technological learning over time at macro levels remains largely untouched. In this paper, by adding the experience curve into the multifactor productivity part of Neoclassical production function, we will develop a model which will allow one to estimate the technological learning levels over long periods. This model would allow a user to both estimate the past learning experiences and forecast its future path on a time varying basis. The model has been used and tested in the estimation of the annual technological learning values for 28 Turkish manufacturing industries from 1981 to 2000.