Productivity, Wages, and Prices Inside and Outside of Manufacturing in the U.S., Japan, and Europe
This paper studies the dynamic behavior of changes in productivity, wages, and prices. Results are based on a new data set that allows a consistent analysis of the aggregate economy, the manufacturing sector, and the nonmanufacturing sector. Results are presented for the U. S., Japan, and an aggregate called "Europe" consisting of eleven European economies. The primary theme of the paper is that differences between Europe and the U. S. have been substantially exaggerated in recent work. Europe has neither greater nominal wage flexibility nor more rigid real wages than the U. S. Evidence that the U. S. exhibits more nominal rigidity is confined to manufacturing, while the U. S. aggregate and nonmanufacturing sectors display as much nominal wage flexibility as Europe, and similar "output sacrifice ratios" as well. These results undermine the case frequently made against demand expansion in Europe on the ground that such a demand expansion would cause only extra inflation with no bonus of extra output as a result of a uniquely vertical European aggregate supply curve. The analysis of real wages also yields new results. A consistent treatment of the income of the self-employed almost completely eliminates the secular uptrend in previously developed wage gap indexes for Japan and Europe between the 1960s and 1980s. If anything real wages in Europe and Japan were too flexible rather than too rigid, in the sense that much of the increase in wage gap indexes in Europe during 1968-70 and in Japan in 1973-74 can be interpreted as autonomous wage push. The component of increases in wage gap indexes to be attributed to a failure of real wages to respond to the post-1972 productivity growth slowdown is relatively minor. The paper's analysis of productivity change confirms the real-wage elasticity of labor input emphasized previously, but shows that the response of productivity to changes in the real wage, and to cyclical output fluctuations, is roughly the same the U, S., Japan, and Europe. The cyclical analysis allows an estimate of trend productivity growth, revealing interesting differences between the manufacturing and nonmanufacturing sectors in the three economies.
|Date of creation:||Nov 1986|
|Publication status:||published as Gordon, Robert J. "Productivity, Wages, and Prices Inside and Outside of Manufacturing in the U.S., Japan, and Europe," European Economic Review, Vol. 31m No. 3, April 1987, pp. 685-733.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
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.:
- Robert J. Gordon, 1985. "Understanding Inflation in the 1980s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 263-302.
- William H. Branson & Julio J. Rotemberg, 1979.
"International Adjustment with Wage Rigidity,"
NBER Working Papers
0406, National Bureau of Economic Research, Inc.
- William H. Branson & Julio J. Rotemberg, 1991. "International Adjustment with Wage Rigidity," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 13-44 National Bureau of Economic Research, Inc.
- William H. Branson & Julio J. Rotemberg, 1981. "International adjustment with wage rigidity," NBER Chapters, in: International Seminar on Macroeconomics, pages 309-332 National Bureau of Economic Research, Inc.
- Branson, William H. & Rotemberg, Julio J., 1980. "International adjustment with wage rigidity," European Economic Review, Elsevier, vol. 13(3), pages 309-332, May.
- Olivier J. Blanchard, 1986.
"Empirical Structural Evidence on Wages, Prices and Employment in the US,"
NBER Working Papers
2044, National Bureau of Economic Research, Inc.
- Olivier J. Blanchard, 1986. "Empirical Structural Evidence On Wages, Prices and Employment in the US," Working papers 431, Massachusetts Institute of Technology (MIT), Department of Economics.
- Robert J. Gordon, 1977. "World Inflation and Monetary Accommodation in Eight Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 409-478.
- George L. Perry, 1975. "Determinants of Wage Inflation Around the World," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 403-448.
- Grubb, David B, 1986. "Topics in the OECD Phillips Curve," Economic Journal, Royal Economic Society, vol. 96(381), pages 55-79, March.
- Tullio, Giuseppe, 1987. "Long run implications of the increase in taxation and public debt for employment and economic growth in Europe," European Economic Review, Elsevier, vol. 31(3), pages 741-774, April.
- Hamada, Koichi & Kurosaka, Yoshio, 1984. "The relationship between production and unemployment in Japan : Okun's law in comparative perspective," European Economic Review, Elsevier, vol. 25(1), pages 71-94, June.
- Franz, Wolfgang & Konig, Heinz, 1986. "The Nature and Causes of Unemployment in the Federal Republic of Germany since the 1970s: An Empirical Investigation," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 219-244, Supplemen.
- Jacques R. Artus, 1984. "An Empirical Evaluation of the Disequilibrium Real Wage Rate Hypothesis," NBER Working Papers 1404, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2070. 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: ()
If references are entirely missing, you can add them using this form.