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Wage Moderation and Labour Productivity

In: Fostering Productivity: Patterns, Determinants and Policy Implications

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  • Peter Broer
  • Frederik Huizinga

Abstract

In the Dutch economic policy debate, wage moderation is widely considered as a key factor for achieving economic growth and low unemployment. However, some economists criticise the policy emphasis on wage moderation, claiming that high wages are needed to maintain structural labour productivity growth. In the Dutch economic policy debate, wage moderation is widely considered as a key factor for achieving economic growth and low unemployment. However, some economists criticise the policy emphasis on wage moderation, claiming that high wages are needed to maintain structural labour productivity growth. This paper analyses the effects of a wage push on labour productivity within the framework of endogenous technological progress, endogenous technology adoption and insufficient competition. The conclusion is that a wage push raises labour productivity in the short run. However, this rise in labour productivity is temporary and inefficient. In the long run, a wage push may well harm labour productivity. The main message of the paper is that it is probably best not to use wage policy at all as a tool to influence productivity. As a tool against unemployment, however, it is very effective. These insights are applied in a review of the Dutch post-war productivity growth.
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Suggested Citation

  • Peter Broer & Frederik Huizinga, 2004. "Wage Moderation and Labour Productivity," Contributions to Economic Analysis, in: Fostering Productivity: Patterns, Determinants and Policy Implications, pages 141-158, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:ceazzz:s0573-8555(2004)0000263010
    DOI: 10.1108/S0573-8555(2004)0000263010
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    2. Chantal Kegels & Michael Peneder & Henry van der Wiel, 2012. "Productivity Performance in Three Small European Countries: Austria, Belgium and the Netherlands," Chapters, in: Matilde Mas & Robert Stehrer (ed.), Industrial Productivity in Europe, chapter 5, Edward Elgar Publishing.
    3. George Gelauff & Arjan Lejour, 2006. "Five Lisbon highlights; the economic impact of reaching these targets," CPB Document 104, CPB Netherlands Bureau for Economic Policy Analysis.
    4. George Gelauff & Arjan Lejour, 2006. "Five Lisbon highlights; the economic impact of reaching these targets," CPB Document 104.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Jurriaan Eggelte & Jos Jansen & Guido Schotten & Diederik Dicou, 2014. "Wage Development Considered," DNB Occasional Studies 1201, Netherlands Central Bank, Research Department.
    6. Gelauff, George & Lejour, Arjan, 2006. "The new Lisbon Strategy: An estiamtion of the impact of reaching 5 Lisbon targets," MPRA Paper 16168, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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