Wage-productivity gap in OECD economies

Ceyhun Elgin and Tolga Kuzubas

No 2013-18, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The Walrasian theory of labor market equilibrium predicts that in the absence of any market frictions, workers earn a wage rate equal to their marginal productivity. However, this observation is not supported empirically for various economies. Based on the neoclassical tradition, the ratio of the marginal product of labor to real wages is generally defined as the Pigouvian exploitation rate. In this paper, the authors calculate this specific wage-productivity gap for the manufacturing sector in OECD economies and investigate its relation to the unemployment rate along with other variables such as government taxation, capital expansion, unionization, inflation. The authors find that the wage productivity gap gives a robust and significantly positive response to shocks to the unemployment rate and negative response to shocks to unionization.

Keywords: wages; marginal productivity of labor; panel-VAR; OECD economies (search for similar items in EconPapers)
JEL-codes: J24 J30 J64 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-lab and nep-lma
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201318

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