Wages and Productivity Growth in a Dynamic Monopoly

Helmut Bester and Emmanuel Petrakis

Departmental Working Papers

Abstract: This paper studies the intertemporal problem of a monopolistic firm that engages in productivity enhancing innovations to reduce its labor costs. If the level of wages is sufficiently low, the firm's rate of productivity growth approaches the rate of wage growth and eventually the firm reaches a steady state where its unit labor cost remains constant over time. Otherwise, it will gradually reduce its innovation effort over time and ultimately terminate production. Productivity dependent wage differentials do not affect productivity growth in the steady state; they increase, however, the firm's long--run equilibrium cost level.

Keywords: process innovation; industry dynamics; wages (search for similar items in EconPapers)
JEL-codes: D24 D42 D92 J30 J51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
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Related works:
Journal Article: Wages and productivity growth in a dynamic monopoly (2004)
Working Paper: Wages and Productivity Growth in a Dynamic Monopoly (2001)
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