Wage moderation and labour productivity
AbstractIn 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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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 28.
Date of creation: Mar 2004
Date of revision:
Find related papers by 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, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-16 (All new papers)
- NEP-DEV-2005-01-16 (Development)
- NEP-EFF-2005-01-16 (Efficiency & Productivity)
- NEP-LAB-2005-01-16 (Labour Economics)
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