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Wage-productivity gap in OECD economies

  • Elgin, Ceyhun
  • Kuzubas, Tolga Umut

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. In this paper, based on the neoclassical tradition, the authors define the ratio of the marginal product of labor to real wages as the Pigouvian exploitation rate and then construct a panel dataset of this specific wage-productivity gap for the manufacturing sector in OECD economies. Next, they investigate its relationship with the unemployment rate along with various other variables such as the government taxation, capital expansion, unionization, inflation. Their findings suggest that the wage-productivity gap gives a robust and significantly positive response to shocks to unemployment rate and a negative response to shocks to unionization.

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2013-21
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Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 7 (2013)
Issue (Month): ()
Pages: 1-21

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Handle: RePEc:zbw:ifweej:201321
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  1. Cahuc, Pierre & Postel-Vinay, Fabien & Robin, Jean-Marc, 2003. "Wage Bargaining with On-The-Job Search: Theory and Evidence," CEPR Discussion Papers 4154, C.E.P.R. Discussion Papers.
  2. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  3. Junankar, P.N. & Madsen, J.B., 1996. "Unemployment in the OECD: models and mysteries," Discussion Paper Series In Economics And Econometrics 9648, Economics Division, School of Social Sciences, University of Southampton.
  4. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  5. Persky, Joseph & Tsang, Herbert, 1974. "Pigouvian Exploitation of Labor," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 52-57, February.
  6. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  7. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
  8. Antonia López‐Villavicencio & José Ignacio Silva, 2011. "Employment Protection And The Non‐Linear Relationship Between The Wage‐Productivity Gap And Unemployment," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 200-220, 05.
  9. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  10. G. Sulis, 2004. "Wage Dispersion and Equilibrium Search. Models: Some Evidence from Italy," Working Paper CRENoS 200402, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  11. Ceyhun Elgin & Tolga Umut Kuzubas, 2012. "Wage-Productivity Gap in Turkish Manufacturing Sector," Working Papers 2012/03, Bogazici University, Department of Economics.
  12. Blanchard, Olivier J & Galí, Jordi, 2008. "Labour Markets and Monetary Policy: A New Keynesian Model with Unemployment," CEPR Discussion Papers 6765, C.E.P.R. Discussion Papers.
  13. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  14. L. Vanessa Smith & Stephen Leybourne & Tae-Hwan Kim & Paul Newbold, 2004. "More powerful panel data unit root tests with an application to mean reversion in real exchange rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 147-170.
  15. Gordon, Robert J, 1995. "Is There a Trade-off between Unemployment and Productivity Growth?," CEPR Discussion Papers 1159, C.E.P.R. Discussion Papers.
  16. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  17. Pascalau, Razvan, 2007. "Productivity Shocks, Unemployment Persistence, and the Adjustment of Real Wages in OECD Countries," MPRA Paper 7222, University Library of Munich, Germany.
  18. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  19. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
  20. Madsen, Jakob Brochner, 1994. "The Real Wage Gap and Unemployment in the OECD," Australian Economic Papers, Wiley Blackwell, vol. 33(62), pages 96-106, June.
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