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Productivity-wage-growth nexus: an empirical study of Singapore

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  • Freddy, Liew

Abstract

This paper investigates the empirical relationship between labor productivity, real wages and real GDP in Singapore from 1997 to 2011. The paper begins with a review of productivity, wage and growth situations in Singapore in the past decade and further attempts to uncover the underlying relationship in this nexus using theoretical framework from labor and growth literature. Using the Vector-Autoregressive or Vector-Error Correction Mechanism when cointegration is present, this paper uncovers various causality relations in different industries which conform to economic theory and empirics. An impulse response analysis is also undertaken to understand how specific policy decisions could be framed to provide for higher wages across industries. The empirical results suggest that in the Singapore economy, there exist a bi-directional causality relation between labor productivity and real GDP but that wages seem to be caused by other underlying factors. However, real wages respond positively to positive shocks in the real GDP or labor productivity using cholesky or generalized decomposition. This paper concludes by discussing policies that could be undertaken to promote inclusive growth in the environment of sustained economic growth.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34459.

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Date of creation: 01 Nov 2011
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Handle: RePEc:pra:mprapa:34459

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Keywords: Causality; Productivity; Wage; Economic Growth; Singapore;

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  1. Dale W. Jorgenson, 1991. "Productivity and Economic Growth," NBER Chapters, in: Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, pages 19-118 National Bureau of Economic Research, Inc.
  2. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  3. Hall, Robert E & Lilien, David M, 1979. "Efficient Wage Bargains under Uncertain Supply and Demand," American Economic Review, American Economic Association, vol. 69(5), pages 868-79, December.
  4. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, vol. 92(3), pages 527-548, June.
  5. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  6. Haltiwanger, John C. & Lane, Julia I. & Spletzer, James R., 2007. "Wages, productivity, and the dynamic interaction of businesses and workers," Labour Economics, Elsevier, vol. 14(3), pages 575-602, June.
  7. 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.
  8. Per-Anders Edin & Robert Topel, 1997. "Wage Policy and Restructuring: The Swedish Labor Market since 1960," NBER Chapters, in: The Welfare State in Transition: Reforming the Swedish Model, pages 155-202 National Bureau of Economic Research, Inc.
  9. Alexandre Rands Barros, 1993. "Real Wages and Economic Growth: A Structuralist Hypothesis in an Endogenous Growth Model," Working Papers 49, Datamétrica Consultoria Econômica, revised 1993.
  10. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  11. Feldstein, Martin, 2008. "Did wages reflect growth in productivity?," Journal of Policy Modeling, Elsevier, vol. 30(4), pages 591-594.
  12. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
  13. Feldstein, Martin, 2008. "Did Wages Reflect Growth in Productivity?," Scholarly Articles 2794832, Harvard University Department of Economics.
  14. 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.
  15. Fields, Gary S. & Wan, Henry Jr., 1989. "Wage-setting institutions and economic growth," World Development, Elsevier, vol. 17(9), pages 1471-1483, September.
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