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Wages and Productivity Growth in a Dynamic Monopoly

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  • Helmut Bester

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  • Emmanuel Petrakis

Abstract

This paper studies the intertemporal problem of a monopolistic firm that engages in productivity enhancing innovations to reduce its labor costs. If the level of wages is sufficiently low, the firm's rate of productivity growth approaches the rate of wage growth and eventually the firm reaches a steady state where its unit labor cost remains constant over time. Otherwise, it will gradually reduce its innovation effort over time and ultimately terminate production. Productivity dependent wage differentials do not affect productivity growth in the steady state; they increase, however, the firm's long--run equilibrium cost level.

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Paper provided by Departmental Working Papers in its series Papers with number 012.

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Handle: RePEc:bef:lsbest:012

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Keywords: process innovation; industry dynamics; wages;

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Cited by:
  1. Bester, Helmut & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2009. "Wages and productivity growth in a dynamic oligopoly," Discussion Papers 2009/18, Free University Berlin, School of Business & Economics.
  2. Koeniger, Winfried, 2002. "Defensive Innovations," IZA Discussion Papers 454, Institute for the Study of Labor (IZA).
  3. Bester, Helmut & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2012. "Wage bargaining, productivity growth and long-run industry structure," Labour Economics, Elsevier, vol. 19(6), pages 923-930.

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