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Wages Ahead of Demand

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Author Info
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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Publisher 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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Related research
Keywords: Inter-industry wage differentials; efficiency wages; productivity growth.;

Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

Cited by:
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  1. repec:ese:iserwp: is not listed on IDEAS
  2. Ali Choudhary & Paul Levine, 2004. "Can Risk Aversion in Firms Reduce Unemployment Persistence?," Department of Economics Discussion Papers 0704, Department of Economics, University of Surrey. [Downloadable!]
  3. Ali Choudhary & Paul Levine, 2003. "Self-Stabilizing Firms and Unemployment Persistence," Department of Economics Discussion Papers 0303, Department of Economics, University of Surrey. [Downloadable!]
  4. 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. [Downloadable!]
  5. 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. [Downloadable!]
Statistics
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