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Productivity, Wages and Prices Inside and Outside of Manufacturing in the US, Japan and Europe

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  • Gordon, Robert J

Abstract

This paper studies the dynamic behaviour of changes in productivity, wages, and prices. Results are based on a new data set that allows a consistent analysis of the aggregate economy, the manufacturing sector, and the non-manufacturing sector. Results are presented for the United States, Japan, and an aggregate called "Europe" consisting of eleven European economies. The primary theme of the paper is that the differences between Europe and the United States have been substantially exaggerated in recent work. Europe has neither greater nominal wage flexibility nor more rigid real wages than the United States. Evidence that the United States exhibits more nominal rigidity is confined to manufacturing, while the United States aggregate and non-manufacturing sectors display as much nominal wage flexibility as Europe, and similar "output sacrifice ratios" as well. These results undermine the case frequently made against demand expansion in Europe namely that as a result of a uniquely vertical European aggregate supply curve, such a demand expansion would only create more inflation without bringing any of the benefits of increased output. The analysis of real wages also yields new results. A consistent treatment of the income of the self-employed almost completely eliminates the secular increase between the 1960s and 1980s in the wage gap indices for Japan and Europe. If anything, real wages in Europe and Japan were too flexible rather than too rigid, in the sense that much of the increase in wage gap indices in Europe during 1968-70 and in Japan in 1973-74 can be interpreted as autonomous wage push. Only a very small part of the increase in the wage gap can be attributed to a failure of real wages to respond to the post-1972 productivity growth slowdown. The paper's analysis of productivity change confirms the real-wage elasticity of labour input emphasized previously, but shows that the response of productivity to changes in the real wage, and to cyclical output fluctuations, is roughly the same the United States, Japan, and Europe. The cyclical analysis allows an estimate of trend productivity growth, revealing interesting differences between the manufacturing and non-manufacturing sectors in the three economies.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 134.

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Date of creation: Oct 1986
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Handle: RePEc:cpr:ceprdp:134

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Keywords: Europe; Japan; Labour Productivity; United States; Wage Gap; Wage Rigidity;

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Cited by:
  1. Helmut Bester & Emmanuel Petrakis, . "Wages and Productivity Growth in a Competitive Industry," Papers 009, Departmental Working Papers.
  2. Saten Kumar & Don J. Webber & Geoff Perry, 2012. "Real wages, inflation and labour productivity in Australia," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 2945-2954, August.
  3. Hibbs, Douglas A, Jr & Locking, Hakan, 2000. "Wage Dispersion and Productive Efficiency: Evidence for Sweden," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 755-82, October.
  4. Pehkonen, Jaakko, 1995. "Wages and productivity growth in the Nordic countries," European Economic Review, Elsevier, vol. 39(6), pages 1181-1196, June.
  5. Helmut Bester & Emmanuel Petrakis, . "Wages and Productivity Growth in a Dynamic Monopoly," Papers 012, Departmental Working Papers.
  6. zamparelli, luca, 2008. "Direction and intensity of technical change: a micro-founded growth model," MPRA Paper 10843, University Library of Munich, Germany.
  7. 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.
  8. Hibbs Jr., Douglas A., 2000. "Bread and Peace Voting in U.S. Presidential Elections," Working Papers in Economics 20, University of Gothenburg, Department of Economics.
  9. Soltwedel, Rüdiger & Bothe, Adrian & Hoffmeyer, Martin & Laaser, Claus-Friedrich & Lammers, Konrad & Merz, Monika & Reuter, Dieter, 1990. "Regulierungen auf dem Arbeitsmarkt der Bundesrepublik," Open Access Publications from Kiel Institute for the World Economy 418, Kiel Institute for the World Economy (IfW).
  10. Lawrence H. Summers & Jonathan Gruber & Rodrigo Vergara, 1992. "Taxation and the Structure of Labor Markets: The Case of Corporatism," NBER Working Papers 4063, National Bureau of Economic Research, Inc.
  11. Chirinko, Robert S., 1995. "Nonconvexities, labor hoarding, technology shocks, and procyclical productivity a structural econometric analysis," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 61-98.

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