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Real wages and labor-saving technical change: evidence from a panel of manufacturing industries in mature and labor-surplus economies

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  • Joao Paulo A. de Souza

    () (Department of Economics, University of Massachusetts, Amherst)

Abstract

This paper uses panel cointegration and error correction models to unveil the direction of long-run causality between the real product wage and labor productivity at the industry level. I use two datasets of manufacturing industries: the EU-Klems dataset covering 11 industries in 19 developed economies, and the Unido Industrial Statistics Database covering 22 industries in 30 developed and developing economies. In both datasets, I find evidence of cointegration between the two variables, as well as evidence of two-way, long-run Granger causality. These findings are consistent with theories of directed technical change, which claim that a rise in labor costs sparks the adoption of labor-saving innovations. They are also consistent with distributive theories whereby real wages keep apace of labor productivity growth, giving rise to long-run stability in functional distribution.

Suggested Citation

  • Joao Paulo A. de Souza, 2014. "Real wages and labor-saving technical change: evidence from a panel of manufacturing industries in mature and labor-surplus economies," UMASS Amherst Economics Working Papers 2014-03, University of Massachusetts Amherst, Department of Economics.
  • Handle: RePEc:ums:papers:2014-03
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    References listed on IDEAS

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    Keywords

    Technological Change; Wage Shares; Labor Productivity; Panel Cointegration;

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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