IDEAS home Printed from https://ideas.repec.org/a/kap/empiri/v45y2018i4d10.1007_s10663-017-9390-6.html
   My bibliography  Save this article

Testing the great decoupling: a long memory approach

Author

Listed:
  • Luis A. Gil-Alana

    (University of Navarra)

  • Marinko Skare

    (Juraj Dobrila University of Pula)

Abstract

The disconnection between productivity and workers’ compensation after 1980 is a fact not only for the U.S., Canada, Japan but also for Europe. The level of the decoupling between labor productivity and real hourly compensation is highest in the U.S. and Japan and lowest in Norway and Germany. This study investigates the great decoupling phenomena between 1950 and 2014 for eight economies with available time series data. The results should assist policy makers in developing efficient wage-setting mechanisms and help researchers in the field of wage moderation policy and the great decoupling. For this purpose we use fractional integration and cointegration techniques. Countries with stagnating minimum wages, rigid wage moderation policy and a high level of technological progress (strong total factor productivity growth) register higher wage stagnation in relation to labor productivity. Policy makers should be extremely careful when using wage moderation policy to improve a country’s competitiveness and should monitor the wage stagnation behind labor productivity (great decoupling) since workers have been producing more but receiving significantly less since 1980. The great decoupling is more prominent today and it is constantly increasing not just in the U.S. and Japan but worldwide.

Suggested Citation

  • Luis A. Gil-Alana & Marinko Skare, 2018. "Testing the great decoupling: a long memory approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(4), pages 801-820, November.
    • Handle: RePEc:kap:empiri:v:45:y:2018:i:4:d:10.1007_s10663-017-9390-6
    DOI: 10.1007/s10663-017-9390-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10663-017-9390-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10663-017-9390-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marika Karanassou & Hector Sala, 2014. "The role of the wage-productivity gap in economic activity," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(4), pages 436-459, July.
    2. Søren Johansen & Morten Ørregaard Nielsen, 2012. "Likelihood Inference for a Fractionally Cointegrated Vector Autoregressive Model," Econometrica, Econometric Society, vol. 80(6), pages 2667-2732, November.
    3. Miles S. Kimball & John G. Fernald & Susanto Basu, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, vol. 96(5), pages 1418-1448, December.
    4. Francis, Neville & Ramey, Valerie A., 2005. "Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1379-1399, November.
    5. Claudia Olivetti & Barbara Petrongolo, 2014. "Gender gaps across countries and skills: Demand, supply and the industry structure," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 842-859, October.
    6. Webber, Douglas A., 2015. "Firm market power and the earnings distribution," Labour Economics, Elsevier, vol. 35(C), pages 123-134.
    7. Robert J. Gordon, 1995. "Is There a Tradeoff between Unemployment and Productivity Growth?," NBER Working Papers 5081, National Bureau of Economic Research, Inc.
    8. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(4), pages 543-569.
    9. Junankar, Pramod N. (Raja), 2013. "Is there a Trade-off between Employment and Productivity?," IZA Discussion Papers 7717, Institute of Labor Economics (IZA).
    10. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    11. Ian Dew-Becker & Robert J. Gordon, 2005. "Where Did Productivity Growth Go? Inflation Dynamics and the Distribution of Income," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 67-150.
    12. Van Biesebroeck, Johannes, 2011. "Wages Equal Productivity. Fact or Fiction? Evidence from Sub Saharan Africa," World Development, Elsevier, vol. 39(8), pages 1333-1346, August.
    13. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
    14. Jozef Konings & Stijn Vanormelingen, 2015. "The Impact of Training on Productivity and Wages: Firm-Level Evidence," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 485-497, May.
    15. van Soest, A.H.O. & Stancanelli, E.G.F., 2010. "Does Income Taxation Affect Partners’ Household Chores?," Discussion Paper 2010-76, Tilburg University, Center for Economic Research.
    16. Johansen, Søren & Nielsen, Morten Ørregaard, 2010. "Likelihood inference for a nonstationary fractional autoregressive model," Journal of Econometrics, Elsevier, vol. 158(1), pages 51-66, September.
    17. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    18. Jordi Gali & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBS Model Fit Postwar U.S. Data?," NBER Working Papers 10636, National Bureau of Economic Research, Inc.
    19. Luis A. Gil‐Alana, 2008. "Fractional integration and structural breaks at unknown periods of time," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(1), pages 163-185, January.
    20. Lorraine Dearden & Howard Reed & John Van Reenen, 2006. "The Impact of Training on Productivity and Wages: Evidence from British Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(4), pages 397-421, August.
    21. Luis A. Gil‐Alana, 2003. "Testing of Fractional Cointegration in Macroeconomic Time Series," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(4), pages 517-529, September.
    22. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    23. Caliendo, Marco & Lee, Wang-Sheng & Mahlstedt, Robert, 2017. "The gender wage gap and the role of reservation wages: New evidence for unemployed workers," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 161-173.
    24. Elgin, Ceyhun & Kuzubas, Tolga Umut, 2013. "Wage-productivity gap in OECD economies," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-21.
    25. Andrea Garnero & Romina Giuliano & Benoit Mahy & François Rycx, 2016. "Productivity, wages and profits among Belgian firms: do fixed-term contracts matter?," International Journal of Manpower, Emerald Group Publishing Limited, vol. 37(2), pages 303-322, May.
    26. Granger, Clive W. J. & Hyung, Namwon, 2004. "Occasional structural breaks and long memory with an application to the S&P 500 absolute stock returns," Journal of Empirical Finance, Elsevier, vol. 11(3), pages 399-421, June.
    27. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    28. Jianmin Tang, 2015. "Employment and Productivity: Exploring the Trade-off," International Productivity Monitor, Centre for the Study of Living Standards, vol. 28, pages 63-80, Spring.
    29. Paul Cavelaars, 2005. "Has the Tradeoff Between Productivity Gains and Job Growth Disappeared?," Kyklos, Wiley Blackwell, vol. 58(1), pages 45-64, February.
    30. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-125, March.
    31. Andrea De Michelis & Marcello Estevão & Beth Anne Wilson, 2013. "Productivity or Employment: Is It a Choice?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 25, pages 41-60, Spring.
    32. KODAMA Naomi & ODAKI Kazuhiko, 2012. "A New Approach to Measuring the Gap between Marginal Productivity and Wages of Workers," Discussion papers 12028, Research Institute of Economy, Trade and Industry (RIETI).
    33. Karolina Goraus & Joanna Tyrowicz, 2014. "Gender Wage Gap in Poland – Can It Be Explained by Differences in Observable Characteristics?," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 36.
    34. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-538, June.
    35. Claudia Goldin, 2014. "A Grand Gender Convergence: Its Last Chapter," American Economic Review, American Economic Association, vol. 104(4), pages 1091-1119, April.
    36. Jan Ours & Lenny Stoeldraijer, 2011. "Age, Wage and Productivity in Dutch Manufacturing," De Economist, Springer, vol. 159(2), pages 113-137, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bobanović, Mieta, 2021. "Germany And The United Kingdom: Under The Shadow Of The Great Decoupling," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 12(2), pages 147-155.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manuel David Cruz, 2022. "Labor productivity, real wages, and employment: evidence from a panel of OECD economies over 1960-2019," Working Papers PKWP2203, Post Keynesian Economics Society (PKES).
    2. Danthine, Jean-Pierre & Kurmann, André, 2010. "The business cycle implications of reciprocity in labor relations," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 837-850, October.
    3. Abakah, Emmanuel Joel Aikins & Caporale, Guglielmo Maria & Gil-Alana, Luis Alberiko, 2021. "Economic policy uncertainty: Persistence and cross-country linkages," Research in International Business and Finance, Elsevier, vol. 58(C).
    4. Jose Maria Fernandez-Crehuet & Luis Alberiko Gil-Alana & Cristina Martí Barco, 2020. "Unemployment and Fertility: A Long Run Relationship," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 152(3), pages 1177-1196, December.
    5. Veronique Genre & Karsten Kohn & Daphne Momferatou, 2011. "Understanding inter-industry wage structures in the euro area," Applied Economics, Taylor & Francis Journals, vol. 43(11), pages 1299-1313.
    6. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "Productivity, External Balance, and Exchange Rates: Evidence on the Transmission Mechanism among G7 Countries," NBER Chapters, in: NBER International Seminar on Macroeconomics 2006, pages 117-194, National Bureau of Economic Research, Inc.
    7. Jean‐Pierre Danthine & André Kurmann, 2007. "The Macroeconomic Consequences of Reciprocity in Labor Relations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(4), pages 857-881, December.
    8. Yim, Hyejin & Katare, Bhagyashree & Cuffey, Joel, 2022. "Does Increasing Minimum Wage Impact Service Quality? Evidence from Restaurant Food Safety Inspections," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322411, Agricultural and Applied Economics Association.
    9. Bai, Peiwen & Cheng, Wenli, 2020. "Relative earnings and firm performance: Evidence from publicly-listed firms in China, 2005–2012," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 279-290.
    10. Pu Chen, Armon Rezai, Willi Semmler, 2007. "WP 2007-8 Productivity and Unemployment in the Short and Long Run," SCEPA working paper series. 2007-8, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    11. Campbell, Carl M., 2014. "The formation of wage expectations in the effort and quit decisions of workers," Economic Modelling, Elsevier, vol. 42(C), pages 313-322.
    12. Tripier, Fabien, 2006. "Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2749-2774, December.
    13. Zheng Liu & Louis Phaneuf, 2008. "Do Nominal Rigidities Matter for the Transmission of Technology Shocks?," Cahiers de recherche 0837, CIRPEE.
    14. Zeno Enders & Michael Kleemann & Gernot J. Muller, 2021. "Growth Expectations, Undue Optimism, and Short-Run Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 103(5), pages 905-921, December.
    15. Gil-Alana, Luis A. & Yaya, OlaOluwa S. & Akinsomi, Omokolade & Coskun, Yener, 2020. "How do stocks in BRICS co-move with real estate stocks?," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 93-101.
    16. Chaudourne, Jeremy & Fève, Patrick & Guay, Alain, 2014. "Understanding the effect of technology shocks in SVARs with long-run restrictions," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 154-172.
    17. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    18. Lin, Chung-cheng & Chang, Juin-jen & Lai, Ching-chong, 2002. "Profit sharing as a worker discipline device," Economic Modelling, Elsevier, vol. 19(5), pages 815-828, November.
    19. Zeynel Abidin Ozdemir & Mehmet Balcilar & Aysit Tansel, 2013. "International Labour Force Participation Rates By Gender: Unit Root Or Structural Breaks?," Bulletin of Economic Research, Wiley Blackwell, vol. 65, pages 142-164, May.
    20. Corneo, Giacomo, 2013. "Die relative Bezahlung der Hochqualifizierten in Staat und Privatwirtschaft: Deutschland, 1977-2011," Discussion Papers 2013/19, Free University Berlin, School of Business & Economics.
    21. Canegallo, Claudia, 1999. "Funzionamento del mercato del lavoro in presenza di informazione asimmetrica. Una rassegna della letteratura," POLIS Working Papers 8, Institute of Public Policy and Public Choice - POLIS.

    More about this item

    Keywords

    Productivity; Employment; Wages; Great decoupling; Long memory;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:empiri:v:45:y:2018:i:4:d:10.1007_s10663-017-9390-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.