The Linkage between Prices, Wages, and Labor Productivity: A Panel Study of Manufacturing Industries
This article investigates the long-run relationship between prices and wage-adjusted productivity as well as between real wages and average labor productivity at the industry level for a panel of 459 U.S. manufacturing industries over the period 1956–1996. Panel cointegration test results strongly reject the null of no cointegration in the panel between both prices and wage-adjusted productivity and between labor productivity and real wages for many (but not all) industries. Granger-causality tests show that prices are weakly exogenous and cause movements in unit labor cost. Bidirectional Granger causality is found between real wages and productivity; however, a one-to-one relationship is strongly rejected between real wages and productivity. Increases in labor productivity are associated with a less than unity increase in real wages.
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Volume (Year): 70 (2004)
Issue (Month): 4 (April)
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