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Productivity, wages, and prices inside and outside of manufacturing in the U.S., Japan, and Europe

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  • Gordon, Robert J.
  • Gordon, Robert J.

Abstract

This paper studies the dynamic behavior 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 nonmanufacturing sector. Results are presented for the U. S., Japan, and an aggregate called "Europe" consisting of eleven European economies. The primary theme of the paper is that differences between Europe and the U. S. have been substantially exaggerated in recent work. Europe has neither greater nominal wage flexibility nor more rigid real wages than the U. S. Evidence that the U. S. exhibits more nominal rigidity is confined to manufacturing, while the U. S. aggregate and nonmanufacturing 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 on the ground that such a demand expansion would cause only extra inflation with no bonus of extra output as a result of a uniquely vertical European aggregate supply curve. The analysis of real wages also yields new results. A consistent treatment of the income of the self-employed almost completely eliminates the secular uptrend in previously developed wage gap indexes for Japan and Europe between the 1960s and 1980s. 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 indexes in Europe during 1968-70 and in Japan in 1973-74 can be interpreted as autonomous wage push. The component of increases in wage gap indexes to be attributed to a failure of real wages to respond to the post-1972 productivity growth slowdown is relatively minor. The paper's analysis of productivity change confirms the real-wage elasticity of labor input emphasized previously, but shows that the response of productivity to changes in the real wage, and to cyclical output fluctuations, is roughly the sa
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Suggested Citation

  • Gordon, Robert J. & Gordon, Robert J., 1987. "Productivity, wages, and prices inside and outside of manufacturing in the U.S., Japan, and Europe," European Economic Review, Elsevier, vol. 31(3), pages 685-733, April.
    • Handle: RePEc:eee:eecrev:v:31:y:1987:i:3:p:685-733
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    1. Bester, Helmut & Petrakis, Emmanuel, 2003. "Wages and productivity growth in a competitive industry," Journal of Economic Theory, Elsevier, vol. 109(1), pages 52-69, March.
    2. Bester, Helmut & Petrakis, Emmanuel, 2004. "Wages and productivity growth in a dynamic monopoly," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 83-100, January.
    3. Franz, Wolfgang, 1995. "Theoretische Ansätze zur Erklärung der Arbeitslosigkeit: Wo stehen wir 1995?," Discussion Papers 27, University of Konstanz, Center for International Labor Economics (CILE).
    4. Hibbs, Douglas A, Jr, 2000. "Bread and Peace Voting in U.S. Presidential Elections," Public Choice, Springer, vol. 104(1-2), pages 149-180, July.
    5. Pehkonen, Jaakko, 1995. "Wages and productivity growth in the Nordic countries," European Economic Review, Elsevier, vol. 39(6), pages 1181-1196, June.
    6. 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 Kiel).
    7. 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 755-782, October.
    8. zamparelli, luca, 2008. "Direction and intensity of technical change: a micro-founded growth model," MPRA Paper 10843, University Library of Munich, Germany.
    9. 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.
    10. David R. Howell & Margaret Duncan & Bennett Harrison, 1998. "Low Wages in the US and High Unemployment in Europe: A Critical Assessment of the Conventional Wisdom," SCEPA working paper series. 1998-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School, revised Aug 1998.
    11. Franz, Wolfgang & Smolny, Werner, 1993. "Sectoral wage and price formation and working time in Germany: An econometric analysis," Discussion Papers 5, University of Konstanz, Center for International Labor Economics (CILE).
    12. Luca Zamparelli, 2009. "Direction and Intensity of Technical Change: a Micro Model," Working Papers 4, Doctoral School of Economics, Sapienza University of Rome.
    13. 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.
    14. Erol Taymaz & Ebru Voyvoda & Kamil Yilmaz, 2021. "Transition to Democracy, Real Wages and Productivity: The Turkish Experience," Koç University-TUSIAD Economic Research Forum Working Papers 2111, Koc University-TUSIAD Economic Research Forum.
    15. Erol Taymaz & Ebru Voyvoda & Kamil Yilmaz, 2014. "Demokrasiye Gecis, Reel ucretler ve Verimlilik: Turk Imalat Sanayiinden Bulgular," Koç University-TUSIAD Economic Research Forum Working Papers 1408, Koc University-TUSIAD Economic Research Forum.
    16. Lawrence Summers & Jonathan Gruber & Rodrigo Vergara, 1993. "Taxation and the Structure of Labor Markets: The Case of Corporatism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 385-411.
    17. 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.
    18. Jing Cao, 2007. "Measuring Green Productivity Growth for China's Manufacturing Sectors: 1991–2000," Asian Economic Journal, East Asian Economic Association, vol. 21(4), pages 425-451, December.
    19. Adalmir Marquetti, 2004. "Do Rising Real Wages Increase The Rate Of Labor‐Saving Technical Change? Some Econometric Evidence," Metroeconomica, Wiley Blackwell, vol. 55(4), pages 432-441, November.
    20. Jean Le Dem & Frédéric Lerais, 1990. "Où va la productivité du travail ?," Économie et Statistique, Programme National Persée, vol. 237(1), pages 49-67.
    21. Patrick Artus & Sani Avouyi-Dovi, 1990. "Inflation anticipée, politique monétaire et taux d'intérêt aux Etats-Unis," Revue Économique, Programme National Persée, vol. 41(3), pages 581-598.
    22. 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.
    23. Xie, Rui & Fu, Wei & Yao, Siling & Zhang, Qi, 2021. "Effects of financial agglomeration on green total factor productivity in Chinese cities: Insights from an empirical spatial Durbin model," Energy Economics, Elsevier, vol. 101(C).
    24. Franz, Wolfgang, 1992. "Neuere makroökonomische Kontroversen," Discussion Papers, Series II 168, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".

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