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The Dynamic Implications For Wage Changes On Productivity, Prices, And Employment In A Developing Economy: A Structural Var Analysis

Author

Listed:
  • John Baffoe-Bonnie
  • Anthony O. Gyapong

    (Pennsylvania State University - Brandywine, USA
    Pennsylvania State University - Abington, USA)

Abstract

This study employs a Structural Vector Autoregression (SVAR) model to analyze the dynamic effects of wage changes on Ghana's economy. In particular, the paper sheds light on how changes in wages affect the short-run and long-run dynamics of labor productivity, employment and prices in the agricultural and the manufacturing sectors. The empirical results indicate that shocks to wages have no significant impact on employment in the two sectors. While a wage increase does not encourage workers in the agricultural sector to work more, such increase does induce manufacturing workers to increase their productivity in the short run. The empirical results also indicate that, persistent increases in wages may be price inflationary within industries and in the economy as a whole. Therefore a wage policy that moderately increases wages, especially in the manufacturing sector, may provide a partial solution to reduce poverty and increase the standard of living of workers in Ghana.

Suggested Citation

  • John Baffoe-Bonnie & Anthony O. Gyapong, 2012. "The Dynamic Implications For Wage Changes On Productivity, Prices, And Employment In A Developing Economy: A Structural Var Analysis," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(2), pages 397-417, July-Dece.
    • Handle: RePEc:jda:journl:vol.46:year:2012:issue2:pp:397-417
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    Citations

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    Cited by:

    1. Sunde, Tafirenyika & Akanbi, Olusegun Ayodele, 2016. "The Dynamic Effects of Monetary Policy on Real Variables in Namibia," African Journal of Economic Review, African Journal of Economic Review, vol. 4(1), January.
    2. Nurliyana Mohd Basri & Zulkefly Abdul Karim & Noorasiah Sulaiman, 2020. "The Effects of Factors of Production Shocks on Labor Productivity: New Evidence Using Panel VAR Analysis," Sustainability, MDPI, vol. 12(20), pages 1-23, October.
    3. Tafirenyika SUNDE, 2015. "The effects of monetary policy on unemployment in Namibia," Journal of Economic and Social Thought, KSP Journals, vol. 2(4), pages 256-274, December.
    4. repec:ksp:journ3:v:1:y:2015:i:4:p:256-274 is not listed on IDEAS

    More about this item

    Keywords

    Wages; Productivity; Prices; Employment; Structural Var; Efficiency Wage Theory;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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