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Decomposing the Productivity Wage Nexus in Selected OECD Countries, 1986-2013

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  • Andrew Sharpe
  • James Uguccioni

Abstract

Standard economic theory predicts that in the long run, productivity growth ought to drive aggregate real wage growth. We consider this prediction in the case of 11 OECD countries, and find that eight of the 11 experienced slower median real wage growth than labour productivity growth over the 1986-2013 period. We decompose the gap between labour productivity growth and median real wage growth into four components: wage inequality, changes in the importance of employer contributions to social insurance programs, differences between the prices of output and consumption, and changes to labour's share of income. The decompositions ultimately show that there is no common cause for the productivity-wage gap, though most countries did see wage inequality grow and labour's share of income fall to some degree over our period of study.

Suggested Citation

  • Andrew Sharpe & James Uguccioni, 2017. "Decomposing the Productivity Wage Nexus in Selected OECD Countries, 1986-2013," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 25-43, Spring.
    • Handle: RePEc:sls:ipmsls:v:32:y:2017:2
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    References listed on IDEAS

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    1. Cyrille Schwellnus & Andreas Kappeler & Pierre-Alain Pionnier, 2017. "The Decoupling of Median Wages from Productivity in OECD Countries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 44-60, Spring.
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    5. Feldstein, Martin, 2008. "Did wages reflect growth in productivity?," Journal of Policy Modeling, Elsevier, vol. 30(4), pages 591-594.
    6. Joao Paulo Pessoa & John Van Reenen, 2013. "Decoupling of Wage Growth and Productivity Growth? Myth and Reality," CEP Discussion Papers dp1246, Centre for Economic Performance, LSE.
    7. Alexander Bick & Nicola Fuchs-Schündeln & David Lagakos, 2018. "How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications," American Economic Review, American Economic Association, vol. 108(1), pages 170-199, January.
    8. Lawrence Mishel & Kar-Fai Gee, 2012. "Why Aren’t Workers Benefiting from Labour Productivity Growth in the United States?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 23, pages 31-43, Spring.
    9. Tony Fisher & Doug Hostland, 2002. "The Long View: Labour Productivity, Labour Income and Living Standards in Canada," The Review of Economic Performance and Social Progress, in: Andrew Sharpe, Executive Director & France St-Hilaire, Vice-President , Research & Keith Banting, Di (ed.), The Review of Economic Performance and Social Progress 2002: Towards a Social Understanding of Productivity, volume 2, Centre for the Study of Living Standards;The Institutute for Research on Public Policy.
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    Cited by:

    1. Grande, Rafael & Muñoz de Bustillo, Rafael & Fernández Macías, Enrique & Antón, José Ignacio, 2020. "Innovation and job quality. A firm-level exploration," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 130-142.
    2. Alexander Murray, 2016. "Partial versus Total Factor Productivity: Assessing Resource Use in Natural Resource Industries in Canada," CSLS Research Reports 2016-20, Centre for the Study of Living Standards.
    3. Efraim Benmelech & Nittai K. Bergman & Hyunseob Kim, 2022. "Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 200-250.
    4. James Uguccioni, Andrew Sharpe and Alexander Murray, 2016. "Labour Productivity and the Distribution of Real Earnings in Canada, 1976 to 2014," CSLS Research Reports 2016-15, Centre for the Study of Living Standards.
    5. Anna M. Stansbury & Lawrence H. Summers, 2017. "Productivity and Pay: Is the link broken?," NBER Working Papers 24165, National Bureau of Economic Research, Inc.
    6. David M. Williams, 2021. "Pay and Productivity in Canada: Growing Together, Only Slower than Ever," International Productivity Monitor, Centre for the Study of Living Standards, vol. 40, pages 3-26, Spring.
    7. Alexander Murray, 2017. "What Explains the Post-2004 U.S.Productivity Slowdown?," CSLS Research Reports 2017-05, Centre for the Study of Living Standards.
    8. Nasir, Muhammad Ali & Wu, Junjie & Howes, Cameron & Ripley, Helen, 2022. "Asymmetric nexus between wages and productivity in the context of the global financial crisis," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 164-175.
    9. Comisión Nacional de los Mercados y la Competencia (CNMC), 2023. "Guide. Competition against inflation: How competition and efficient regulation help protect the purchasing power of consumers," Colección Estudios de Mercado G-2022-02_ENG, Comisión Nacional de los Mercados y la Competencia (CNMC).
    10. Ivan D. Trofimov, 2019. "Stability of Labour Shares: Evidence from OECD Economies," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 17(1), pages 57-89.
    11. Cyrille Schwellnus & Andreas Kappeler & Pierre-Alain Pionnier, 2017. "The Decoupling of Median Wages from Productivity in OECD Countries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 44-60, Spring.

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    More about this item

    Keywords

    Productivity; OECD; Policies; Global Productivity; Total Factor Productivity; Wages; academics; labour productivity; producitivity-wage gap;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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