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Wage moderation and labour productivity

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Author Info
Frederik Huizinga ()
Peter Broer

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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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Publisher Info
Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Papers 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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Related research
Keywords: wage moderation productivity technological progress creative destruction

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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 - - - Technological Change: Choices and Consequences; Diffusion Processes

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
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  2. Caballero, Ricardo J. & Hammour, Mohamad L., 1998. "Jobless growth: appropriability, factor substitution, and unemployment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48, pages 51-94, June. [Downloadable!] (restricted)
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  3. Acemoglu, Daron, 2002. "Directed Technical Change," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 781-809, October.
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  4. Caballero, Ricardo J & Hammour, Mohamad L, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 805-52, August. [Downloadable!] (restricted)
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  5. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Machiel van Dijk & Richard Nahuis & Daniel Waagmeester, 2005. "Does Public Service Broadcasting Serve The Public? The Future Of Television In The Changing Media Landscape," Working Papers 05-13, Utrecht School of Economics. [Downloadable!]
    Other versions:
  2. George Gelauff & Arjan Lejour, 2006. "Five Lisbon highlights; the economic impact of reaching these targets," CPB Documents 104, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
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