Wages Ahead of Demand

J. Michael Orszag and Gylfi Zoega

Archive Discussion Papers from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: This paper is an attempt to account for the empirical results of Krueger and Summers (1988) which suggest significant inter-industry wage differentials. We derive a dynamic efficiency wage model where firms use their wage policy to reduce turnover costs. Industry wages are shown to be a positive function of both the level of productivity and its expected rate of growth. We use estimated Solow residuals as measures of industry productivity growth and relate them to inter-industry wage differentials. A positive relationship is found at the one-digit level but not for two-digit manufacturing industries.

Keywords: Inter-industry wage differentials; efficiency wages; productivity growth. (search for similar items in EconPapers)
JEL-codes: J31 (search for similar items in EconPapers)
Date: 1996
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Journal Article: Wages ahead of demand (1996)
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