Labor Productivity, Real Wages, and Employment in OECD Economies

Manuel David Cruz

Structural Change and Economic Dynamics, 2023, vol. 66, issue C, 367-382

Abstract: This work investigates the relationship between labor productivity (LP), real wage (RW), and employment (EMP). The paper's main goal is to test competing theories of growth and income distribution. Standard theory predicts that RW should increase following increases in LP. Alternative theories and efficiency wage theories suggest that the distribution causes changes in LP. Theory delivers ambiguous predictions regarding the ultimate effects on EMP, which can be either negative if factor substitution prevails or positive if higher RW and LP generate additional aggregate demand and, therefore, EMP. I study a panel of 25 OECD economies by performing single and multi-equation approaches. My first key result is a positive two-way association between LP and RW, supporting the induced technical change and efficiency wages theories over the marginal productivity theory. My second relevant finding is that EMP is weakly exogenous, suggesting that OECD countries have been labor-constrained for the period under analysis.

Keywords: labor productivity; real wages; employment; OECD (search for similar items in EconPapers)
JEL-codes: E12 E24 O47 O50 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:66:y:2023:i:c:p:367-382

DOI: 10.1016/j.strueco.2023.05.007

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