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

Joao Paulo A. de Souza ()
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Joao Paulo A. de Souza: Department of Economics, University of Massachusetts, Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

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.

Keywords: Technological Change; Wage Shares; Labor Productivity; Panel Cointegration (search for similar items in EconPapers)
JEL-codes: B5 E25 O33 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-eff, nep-hme, nep-lab and nep-mac
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Citations: View citations in EconPapers (1)

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