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Wages Ahead of Demand

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  • J. Michael Orszag
  • Gylfi Zoega

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

Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Archive Discussion Papers with number 9616.

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Date of creation: 1996
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Handle: RePEc:bbk:bbkewp:9616

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Keywords: Inter-industry wage differentials; efficiency wages; productivity growth.;

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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. 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.
  3. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  4. 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.
  5. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  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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