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Wage moderation and labour productivity

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  • Free Huizinga

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  • Peter Broer

    ()

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. 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 Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 28.

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Date of creation: Mar 2004
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Handle: RePEc:cpb:discus:28

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  1. Caballero, R.J. & Hammour, M.L., 1997. "Jobless Growth: Appropriability, Factor-Substitution, and Unemployment," Working papers 97-18, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  3. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
  4. Ricardo J. Caballero & Mohamad L. Hammour, 1994. "On the Timing and Efficiency of Creative Destruction," NBER Working Papers 4768, National Bureau of Economic Research, Inc.
  5. Broer, D.P. & Draper, D.A.G. & Huizinga, F.H., 2000. "The equilibrium rate of unemployment in the Netherlands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-383721, Tilburg University.
  6. Ricardo J. Caballero & Mohamad L. Hammour, 1998. "The Macroeconomics of Specificity," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 724-767, August.
  7. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
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Cited by:
  1. 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.
  2. 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.
  3. Machiel Dijk & Richard Nahuis & Daniel Waagmeester, 2006. "Does Public Service Broadcasting Serve The Public? The Future of Television in the Changing Media Landscape," De Economist, Springer, vol. 154(2), pages 251-276, June.

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