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Effort Elicitation, Wage Differentials and Income Distribution in a Wage-led Growth Regime

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  • Jaylson Jair da Silveira
  • Gilberto Tadeu Lima

Abstract

Motivated by a considerable (experimental and empirical) evidence on endogenous labor effort and inter- and intra-industry wage differentials, this paper explores implications for income distribution, capacity utilization and economic growth of firms using different strategies to elicit effort (and hence productivity) from workers. The frequency distribution of effort-elicitation strategies in the population of firms is governed by a replicator dynamics that generates wage differential as a long-run, evolutionary equilibrium outcome. Although firms willing to elicit more labor effort have to compensate workers with a higher wage rate, a larger proportion of firms adopting such strategy will not necessarily produce a higher wage share in income and thereby higher rates of capacity utilization and economic growth. The intuition is that, depending on the accompanying rise in average labor productivity, the wage share in income (and hence the aggregate effective demand) may not vary positively with the proportion of firms paying higher wages. Therefore, endogenous labor productivity and wage differentials carry relevant theoretical and policy implications for a wage-led growth regime.

Suggested Citation

  • Jaylson Jair da Silveira & Gilberto Tadeu Lima, 2014. "Effort Elicitation, Wage Differentials and Income Distribution in a Wage-led Growth Regime," Working Papers, Department of Economics 2014_10, University of São Paulo (FEA-USP), revised 01 May 2015.
  • Handle: RePEc:spa:wpaper:2014wpecon10
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    Cited by:

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    2. Sanchez-Carrera Edgar J. & Travaglini Giuseppe & Ille Sebastian, 2021. "Macrodynamic Modeling of Innovation Equilibria and Traps," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(2), pages 659-694, June.

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    More about this item

    Keywords

    Labor effort; wage differentials; income distribution; capacity utilization; economic growth.;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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