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Linkage and Causality between Wages and Productivity: A Panel Analysis of U.S. Manufacturing in the Interwar Period

Adam, Marc LU (2013) EKHR92 20131
Department of Economic History
Abstract (Swedish)
This paper analyses the linkage and causality between real wages and labour productivity. Higher real wage growth can raise the incentive of firms to save labour,thereby increasing output per hour worked. Cointegration analysis of a panel of 19 manufacturing industries in the United States for the years 1919 - 1939 suggests strong linkage and bidirectional Granger causality between the two variables. To overcome
the endogeneity between wages and productivity I propose an instrumental variable approach. The rate of unionization in an industry can raise real wages above trend,while not directly affecting labour productivity. Instrumenting real wages with
unionization suggeststhat a ten per cent increase in real wage growth raises labour... (More)
This paper analyses the linkage and causality between real wages and labour productivity. Higher real wage growth can raise the incentive of firms to save labour,thereby increasing output per hour worked. Cointegration analysis of a panel of 19 manufacturing industries in the United States for the years 1919 - 1939 suggests strong linkage and bidirectional Granger causality between the two variables. To overcome
the endogeneity between wages and productivity I propose an instrumental variable approach. The rate of unionization in an industry can raise real wages above trend,while not directly affecting labour productivity. Instrumenting real wages with
unionization suggeststhat a ten per cent increase in real wage growth raises labour productivity growth by 1.2 to 6.6 per cent. (Less)
Please use this url to cite or link to this publication:
author
Adam, Marc LU
supervisor
organization
course
EKHR92 20131
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Labour productivity growth, real wage growth, unionization, interwar period
language
English
id
3878913
date added to LUP
2013-08-23 15:38:44
date last changed
2013-08-23 15:38:44
@misc{3878913,
  abstract     = {This paper analyses the linkage and causality between real wages and labour productivity. Higher real wage growth can raise the incentive of firms to save labour,thereby increasing output per hour worked. Cointegration analysis of a panel of 19 manufacturing industries in the United States for the years 1919 - 1939 suggests strong linkage and bidirectional Granger causality between the two variables. To overcome 
the endogeneity between wages and productivity I propose an instrumental variable approach. The rate of unionization in an industry can raise real wages above trend,while not directly affecting labour productivity. Instrumenting real wages with 
unionization suggeststhat a ten per cent increase in real wage growth raises labour productivity growth by 1.2 to 6.6 per cent.},
  author       = {Adam, Marc},
  keyword      = {Labour productivity growth,real wage growth,unionization,interwar period},
  language     = {eng},
  note         = {Student Paper},
  title        = {Linkage and Causality between Wages and Productivity: A Panel Analysis of U.S. Manufacturing in the Interwar Period},
  year         = {2013},
}