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Productivity, wages, and prices inside and outside of manufacturing in the U.S., Japan, and Europe

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  • Gordon, Robert J.
  • Gordon, Robert J.

Abstract

This paper studies the dynamic behavior of changes in productivity, wages, and prices. Results are based on a new data set that allows a consistent analysis of the aggregate economy, the manufacturing sector, and the nonmanufacturing sector. Results are presented for the U. S., Japan, and an aggregate called "Europe" consisting of eleven European economies. The primary theme of the paper is that differences between Europe and the U. S. have been substantially exaggerated in recent work. Europe has neither greater nominal wage flexibility nor more rigid real wages than the U. S. Evidence that the U. S. exhibits more nominal rigidity is confined to manufacturing, while the U. S. aggregate and nonmanufacturing sectors display as much nominal wage flexibility as Europe, and similar "output sacrifice ratios" as well. These results undermine the case frequently made against demand expansion in Europe on the ground that such a demand expansion would cause only extra inflation with no bonus of extra output as a result of a uniquely vertical European aggregate supply curve. The analysis of real wages also yields new results. A consistent treatment of the income of the self-employed almost completely eliminates the secular uptrend in previously developed wage gap indexes for Japan and Europe between the 1960s and 1980s. If anything real wages in Europe and Japan were too flexible rather than too rigid, in the sense that much of the increase in wage gap indexes in Europe during 1968-70 and in Japan in 1973-74 can be interpreted as autonomous wage push. The component of increases in wage gap indexes to be attributed to a failure of real wages to respond to the post-1972 productivity growth slowdown is relatively minor. The paper's analysis of productivity change confirms the real-wage elasticity of labor input emphasized previously, but shows that the response of productivity to changes in the real wage, and to cyclical output fluctuations, is roughly the sa

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 31 (1987)
Issue (Month): 3 (April)
Pages: 685-733

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Handle: RePEc:eee:eecrev:v:31:y:1987:i:3:p:685-733

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Cited by:
  1. Bester, Helmut & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2012. "Wage bargaining, productivity growth and long-run industry structure," Labour Economics, Elsevier, vol. 19(6), pages 923-930.
  2. Lawrence H. Summers & Jonathan Gruber & Rodrigo Vergara, 1992. "Taxation and the Structure of Labor Markets: The Case of Corporatism," NBER Working Papers 4063, National Bureau of Economic Research, Inc.
  3. Kumar, Saten & Webber, Don J. & Perry, Geoff, 2009. "Real Wages, Inflation and Labour Productivity in Australia," MPRA Paper 19293, University Library of Munich, Germany.
  4. Bester, Helmut & Petrakis, Emmanuel, 1998. "Wages and Productivity Growth in a Competitive Industry," CEPR Discussion Papers 2031, C.E.P.R. Discussion Papers.
  5. Soltwedel, Rüdiger & Bothe, Adrian & Hoffmeyer, Martin & Laaser, Claus-Friedrich & Lammers, Konrad & Merz, Monika & Reuter, Dieter, 1990. "Regulierungen auf dem Arbeitsmarkt der Bundesrepublik," Open Access Publications from Kiel Institute for the World Economy 418, Kiel Institute for the World Economy (IfW).
  6. Hibbs Jr., Douglas A. & Locking, Håkan, 2000. "Wage Dispersion and Productive Efficiency: Evidence For Sweden," Working Papers in Economics 21, University of Gothenburg, Department of Economics.
  7. Pehkonen, Jaakko, 1995. "Wages and productivity growth in the Nordic countries," European Economic Review, Elsevier, vol. 39(6), pages 1181-1196, June.
  8. Hibbs Jr., Douglas A., 2000. "Bread and Peace Voting in U.S. Presidential Elections," Working Papers in Economics 20, University of Gothenburg, Department of Economics.
  9. Helmut Bester & Emmanuel Petrakis, . "Wages and Productivity Growth in a Dynamic Monopoly," Papers 012, Departmental Working Papers.
  10. Chirinko, Robert S., 1995. "Nonconvexities, labor hoarding, technology shocks, and procyclical productivity a structural econometric analysis," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 61-98.
  11. zamparelli, luca, 2008. "Direction and intensity of technical change: a micro-founded growth model," MPRA Paper 10843, University Library of Munich, Germany.

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