The Wage-Productivity Gap Revisited: Is the Labour Share Neutral to Employment?
This paper challenges the prevailing view of the neutrality of the labour income share to labour demand, and investigates its impact on the evolution of employment. Whilst maintaining the assumption of a unitary long-run elasticity of wages with respect to productivity, we demonstrate that productivity growth affects the labour share in the long run due to frictional growth (that is, the interplay of wage dynamics and productivity growth). In the light of this result, we consider a stylised labour demand equation and show that the labour share is a driving force of employment. We substantiate our analytical exposition by providing empirical models of wage setting and employment equations for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960-2008 period. Our findings show that the time-varying labour share of these countries has significantly influenced their employment trajectories across decades. This indicates that the evolution of the labour income share (or, equivalently, the wage-productivity gap) deserves the attention of policy makers.
|Date of creation:||Jul 2010|
|Date of revision:|
|Publication status:||published as 'The Role of the Wage-Productivity Gap in Economic Activity' in: International Review of Applied Economics, 2014, 28 (4), 436-459|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fabienne Llense, 2008.
"French CEO Compensations: What is the Cost of a Mandatory Upper Limit?,"
CESifo Working Paper Series
2402, CESifo Group Munich.
- Fabienne Llense, 2010. "French CEOs' Compensations: What is the Cost of a Mandatory Upper Limit?," CESifo Economic Studies, CESifo, vol. 56(2), pages 165-191, June.
- David G. Blanchflower & Andrew J. Oswald, 1989.
"The Wage Curve,"
NBER Working Papers
3181, National Bureau of Economic Research, Inc.
- Chiaki Moriguchi, 2008.
"Top Wage Incomes in Japan, 1951-2005,"
NBER Working Papers
14537, National Bureau of Economic Research, Inc.
- Moriguchi, Chiaki, 2010. "Top wage incomes in Japan, 1951-2005," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 301-333, September.
- Douglas Gollin, 2001.
"Getting Income Shares Right,"
Department of Economics Working Papers
2001-11, Department of Economics, Williams College.
- Pissarides, Christopher A, 1991. "Real Wages and Unemployment in Australia," Economica, London School of Economics and Political Science, vol. 58(229), pages 35-55, February.
- Jordi Galí, 2009.
"The return of the wage Phillips curve,"
Economics Working Papers
1199, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2010.
- Timothy J. Hatton, 2007.
"Can Productivity Growth Explain the NAIRU? Long-Run Evidence from Britain, 1871-1999,"
London School of Economics and Political Science, vol. 74(295), pages 475-491, 08.
- Hatton, Timothy J., 2002. "Can Productivity Growth Explain NAIRU? Long-run Evidence from Britain, 1871-1999," CEPR Discussion Papers 3424, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5092. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.