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Wages and Productivity Growth in a Competitive Industry

  • Bester, Helmut
  • Petrakis, Emmanuel

Our model studies the evolution of productivity growth in a competitive industry. The exogenous wage rate determines the firms' engagement in labour productivity enhancing process innovation. There is a unique steady state of the industry dynamics, which is globally stable. In the steady state, the number of active firms, their unit labour cost and supply depend on the growth rate but not on the level of the wage rate. In addition to providing comparative statics of the steady state, the paper characterizes the industry's adjustment path.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2031.

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Date of creation: Dec 1998
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Handle: RePEc:cpr:ceprdp:2031
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  7. Robert J. Gordon, 1986. "Productivity, Wages, and Prices Inside and Outside of Manufacturing in the U.S., Japan, and Europe," NBER Working Papers 2070, National Bureau of Economic Research, Inc.
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  11. Van Reenen, John, 1996. "The Creation and Capture of Rents: Wages and Innovation in a Panel of U.K. Companies," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 195-226, February.
  12. Flaig, Gebhard & Stadler, Manfred, 1994. "Success breeds success. The dynamics of the innovation process," Munich Reprints in Economics 20366, University of Munich, Department of Economics.
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  16. Hellwig, Martin & Irmen, Andreas, 2001. "Endogenous Technical Change in a Competitive Economy," Journal of Economic Theory, Elsevier, vol. 101(1), pages 1-39, November.
  17. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  18. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  19. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
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  24. Chennells, Lucy & Van Reenen, John, 1997. "Technical Change and Earnings in British Establishments," Economica, London School of Economics and Political Science, vol. 64(256), pages 587-604, November.
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