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Wages ahead of demand

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  • Orszag, J. Michael
  • Zoega, Gylfi

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.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 53 (1996)
Issue (Month): 3 (December)
Pages: 341-347

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Handle: RePEc:eee:ecolet:v:53:y:1996:i:3:p:341-347

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References

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  1. Susanto Basu & John G. Fernald, 1994. "Are apparent productive spillovers a figment of specification error?," International Finance Discussion Papers 463, Board of Governors of the Federal Reserve System (U.S.).
  2. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  3. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  4. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  5. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  6. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
  7. Hoon, Hian Teck & Phelps, Edmund S, 1992. "Macroeconomic Shocks in a Dynamized Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 82(4), pages 889-900, September.
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Cited by:
  1. Ali Choudhary & Paul Levine, 2003. "Self-Stabilizing Firms and Unemployment Persistence," School of Economics Discussion Papers 0303, School of Economics, University of Surrey.
  2. Ali Choudhary & Paul Levine, 2004. "Can Risk Aversion in Firms Reduce Unemployment Persistence?," School of Economics Discussion Papers 0704, School of Economics, University of Surrey.
  3. Edmund S. Phelps, 1998. "Designing a Capitalist Economy for Fast Growth and High Employment in Today's Globalized World Economy," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 87-103, November.
  4. Seref Saygili, 1998. "Is the Efficiency Wage Hypothesis Valid for Developing Countries? Evidence from the Turkish Cement Industry," Studies in Economics 9810, Department of Economics, University of Kent.

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