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Wages and Productivity Growth in a Dynamic Monopoly

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  • Bester, Helmut
  • Petrakis, Emmanuel

Abstract

This Paper studies the inter-temporal problem of a monopolistic firm that engages in productivity-enhancing innovations to reduce its labour 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 labour 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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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2707.

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Date of creation: Feb 2001
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Handle: RePEc:cpr:ceprdp:2707

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Related research

Keywords: Dynamic Programming; Innovation; Labour Productivity; Monopoly; Wage Differentials; Wages;

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References

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  1. Hellwig, Martin & Irmen, Andreas, 1999. "Endogenous Technical Change in a Competitive Economy," Sonderforschungsbereich 504 Publications 99-53, Sonderforschungsbereich 504, Universit├Ąt Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Helmut Bester & Emmanuel Petrakis, . "Wages and Productivity Growth in a Competitive Industry," Papers 009, Departmental Working Papers.
  3. Machin, Stephen & Wadhwani, Sushil, 1991. "The Effects of Unions of Investment and Innovation: Evidence from WIRS," Economic Journal, Royal Economic Society, vol. 101(405), pages 324-30, March.
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Citations

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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. 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.
  3. Koeniger, Winfried, 2002. "Defensive Innovations," IZA Discussion Papers 454, Institute for the Study of Labor (IZA).

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