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A note on the nonlinear wages-productivity nexus for Malaysia

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  • Tang, Chor Foon

Abstract

This study is to empirically investigate the effect of real wages on productivity in Malaysia using monthly data from January 1983 to November 2009. The Johansen’s test suggests that wages and productivity are cointegrated. Moreover, productivity and real wages have a quadratic relationship in the long run (i.e., inverse-U shape curve) instead of linear relationship. Hence, the effect of real wages on productivity is not monotonic. Furthermore, the Granger causality test indicates that real wages and productivity is bilateral causality in nature.

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File URL: http://mpra.ub.uni-muenchen.de/27286/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24355.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:24355

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Keywords: Causality; Cointegration; Malaysia; Wages-Productivity;

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  1. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
  2. Millea, Meghan & Fuess, Scott Jr., 2005. "Does pay affect productivity or react to it?: Examination of U.S. manufacturing," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(4-5), pages 796-807, September.
  3. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  4. Su Zhou, 2001. "The Power of Cointegration Tests Versus Data Frequency and Time Spans," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 906-921, April.
  5. Alexander, Carol O, 1993. "The Changing Relationship between Productivity, Wages and Unemployment in the UK," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(1), pages 87-102, February.
  6. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
  7. Victor Montuenga-Gomez & Melchor Fernandez & Andres Romeu, 2007. "The Link Between Wages and Productivity in Spain," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(2), pages 247-272.
  8. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  9. Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University.
  10. Paresh Narayan & Russell Smyth, 2009. "The effect of inflation and real wages on productivity: new evidence from a panel of G7 countries," Applied Economics, Taylor & Francis Journals, vol. 41(10), pages 1285-1291.
  11. Jeremy Wakeford, 2004. "The productivity-wage relationship in South Africa: an empirical investigation," Development Southern Africa, Taylor & Francis Journals, vol. 21(1), pages 109-132.
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