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Labor Productivity, Real Wages, and Employment in OECD Economies

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  • Cruz, Manuel David
Abstract
This work investigates the relationship between labor productivity (LP), real wage (RW), and employment (EMP). The paper's main goal is to test competing theories of growth and income distribution. Standard theory predicts that RW should increase following increases in LP. Alternative theories and efficiency wage theories suggest that the distribution causes changes in LP. Theory delivers ambiguous predictions regarding the ultimate effects on EMP, which can be either negative if factor substitution prevails or positive if higher RW and LP generate additional aggregate demand and, therefore, EMP. I study a panel of 25 OECD economies by performing single and multi-equation approaches. My first key result is a positive two-way association between LP and RW, supporting the induced technical change and efficiency wages theories over the marginal productivity theory. My second relevant finding is that EMP is weakly exogenous, suggesting that OECD countries have been labor-constrained for the period under analysis.

Suggested Citation

  • Cruz, Manuel David, 2023. "Labor Productivity, Real Wages, and Employment in OECD Economies," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 367-382.
    • Handle: RePEc:eee:streco:v:66:y:2023:i:c:p:367-382
    DOI: 10.1016/j.strueco.2023.05.007
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    Cited by:

    1. Yang Shen, 2024. "Future jobs: analyzing the impact of artificial intelligence on employment and its mechanisms," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-33, April.

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    More about this item

    Keywords

    labor productivity; real wages; employment; OECD;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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