A cross-sectoral analysis of the relation between labor productivity and labor compensation in the European Union

Achille Fofack () and Serge Temkeng ()
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Achille Fofack: Rauf Denktas University, Turkey
Serge Temkeng: University of Buea, Cameroon

Applied Econometrics, 2021, vol. 62, 54-65

Abstract: The aim of this paper is to assess and compare the link between labor productivity and compensation in four industries — air transport, electronics, finance, and telecommunications — of twenty-five member states of the European Union (EU) from 2000 to 2014. The long-run and short-run dynamics of productivity and compensation are analyzed using the pooled mean group (PMG), the mean group (MG) and the dynamic fixed effects (DFE) estimators. The results confirm the existence of a gap between productivity and compensation in each of those industries as mentioned in previous studies. However, the results show that despite that gap, the link between the two variables is not broken. That is, productivity and compensation are not only linked in the long run, but they also return to their long-run equilibrium after every short-run disturbance. The econometric analysis also reveals that the relation between productivity and compensation does not follow a significantly different pattern from one industry to the other. These findings robust to alternative models, estimation techniques and across industries, suggest that there are some other cross-sectoral factors preventing productivity gains to be fully reflected on paychecks.

Keywords: compensation; labor productivity; labor income share (search for similar items in EconPapers)
JEL-codes: C33 E24 E25 J30 (search for similar items in EconPapers)
Date: 2021
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