Wages and Productivity Growth in a Dynamic Monopoly

Helmut Bester and Emmanuel Petrakis

No 2707, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper studies the inter-temporal problem of a monopolistic firm that engages in productivity-enhancing innovations to reduce its labour 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 labour 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: Innovation; Labour productivity; Wages; Wage differentials; Dynamic programming; Monopoly (search for similar items in EconPapers)
JEL-codes: D24 D42 D92 J30 J51 (search for similar items in EconPapers)
Date: 2001-02
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Journal Article: Wages and productivity growth in a dynamic monopoly (2004)
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