Permanent Scars:The Effects of Wages on Productivity

Claudia Fontanari and Antonella Palumbo
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Claudia Fontanari: Roma Tre University

No inetwp187, Working Papers Series from Institute for New Economic Thinking

Abstract: This paper explores how stagnating real wages may have contributed to the slowdown of US productivity. Through shift-share analysis, we find that after a sharp change in distribution against wages, some historically high-productivity sectors (like manufacturing) switched towards slower productivity growth. This supports our hypothesis that the anemic growth of productivity may be partly due to the trend toward massive use of cheap labor. Our estimation of Sylos Labini's productivity equation confirms the existence of two direct effects of wages, one acting through the incentive to mechanization and the other through the incentive to reorganize labor use. We also show that labor 'weakness' may exert a further negative effect on labor productivity. On the whole, we find that a persistent regime of low wages may determine very negative long-term consequences on the economy.

Keywords: Labor Productivity; Wages; Shift-Share Analysis; Paolo Sylos-Labini; Classical-Keynesian approach (search for similar items in EconPapers)
JEL-codes: E24 L16 O47 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2022-07-01
New Economics Papers: this item is included in nep-eff and nep-hme
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Citations: View citations in EconPapers (3)

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Journal Article: Permanent scars: The effects of wages on productivity (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:inetwp187

DOI: 10.36687/inetwp187

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