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Wage-productivity gap in OECD economies

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  • Elgin, Ceyhun
  • Kuzubas, Tolga Umut

Abstract

The Walrasian theory of labor market equilibrium predicts that in the absence of any market frictions, workers earn a wage rate equal to their marginal productivity. However, this observation is not supported empirically for various economies. Based on the neoclassical tradition, the ratio of the marginal product of labor to real wages is generally defined as the Pigouvian exploitation rate. In this paper, the authors calculate this specific wage-productivity gap for the manufacturing sector in OECD economies and investigate its relation to the unemployment rate along with other variables such as government taxation, capital expansion, unionization, inflation. The authors find that the wage productivity gap gives a robust and significantly positive response to shocks to the unemployment rate and negative response to shocks to unionization. --

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2013-18.

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Date of creation: 2013
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Handle: RePEc:zbw:ifwedp:201318

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Keywords: wages; marginal productivity of labor; panel-VAR; OECD economies;

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References

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  1. Gordon, Robert J, 1995. "Is There a Trade-off between Unemployment and Productivity Growth?," CEPR Discussion Papers 1159, C.E.P.R. Discussion Papers.
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Cited by:
  1. Ceyhun Elgin & Tolga Umut Kuzubas, 2012. "Wage-Productivity Gap in Turkish Manufacturing Sector," Working Papers 2012/03, Bogazici University, Department of Economics.

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