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Productivity-wage nexus at the firm-level in Portugal: Decoupling and divergences

Author

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  • Alexandre Mergulhão
  • José Azevedo Pereira

Abstract

There is a growing international concern about the slowdown in productivity growth, especially as labor productivity enhancements are important drivers of higher generalised living standards. Using administrative data of firms in Portugal between 2010 and 2016, we analyse the relationships between productivity and wages. At odds with neoclassical theory of marginal productivity of labor, we find that two thirds of firms insufficiently raised wages given observed productivity growth. Employing unconditional quantile regressions, we investigate some quantifiable determinants of the productivity-wage gap at different parts of the distributions. Most of the documented dynamics contributed not only to the divergence of productivity and wages but also to the decoupling of productivity and wage growth. We argue that labor market flexibilisation intensified segmentation, providing incentives for non standard contracts. Both dimensions, as well as higher board compensations, international trade and on-the-job training weakened the link between productivity and wages.

Suggested Citation

  • Alexandre Mergulhão & José Azevedo Pereira, 2021. "Productivity-wage nexus at the firm-level in Portugal: Decoupling and divergences," OECD Productivity Working Papers 28, OECD Publishing.
    • Handle: RePEc:oec:ecoaac:28-en
    DOI: 10.1787/749ac20c-en
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    Cited by:

    1. Jacopo Di Domenico & Alberto Russo, 2022. "Innovation, growth, and productivity appropriation. How the elites learned to stop worrying and love public debt," Working Papers 2022/12, Economics Department, Universitat Jaume I, Castellón (Spain).

    More about this item

    Keywords

    compensation; income distribution; Productivity; public policy; Quantile regressions; wage share;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D2 - Microeconomics - - Production and Organizations
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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