The relationship between wagesand productivity growth has attracted a lot of attention in economic theory.
According to the traditional view in growth theory, the causality runs from
productivity growth to wage growth, with higher productivity leading to higher
wages. This relation is based on the argument that “the
marginal productivity equation determines the time path of the real wage” (Solow
1956, p. 68).
A number of empirical studies, though, indicate that labor market conditions affect productivity growth andthus, they point out to a reverse causality. In a recent paper, Dew-Becker
and Gordon (2008) have demonstrated that changes in labor market policies, and thus, in the labor market conditions
can explain the behavior of the EU's productivity growth after 1995, as well as
the differences in the productivity growth's trends in the EU and the US.
Moreover, Gordon, 1987 and Gordon, 2000 has found that the behavior of the ratio of wages to labor productivity plays a crucial role in explaining the trends of macroeconomic
productivity growth in the US, Japan and Europe. Similar findings at the
industry level are presented in Flaig and Stadler (1994), Doms
et al. (1997), and Chennells
and Van Reenen (1997).
The relationship between wages and productivity growth has attracted a lot of attention in economic theory.