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Medium-run determinants of real wages in Australia

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  • Fisher, Lance A.
  • Kingston, Geoffrey

Abstract

We assess the medium-run effects of changes in the labour force, the capital stock and the terms of trade on real wages in Australia between 1978 and 2018. For this purpose, we estimate a simple two-sector specific-factors model. A rise of one percent in the labour force lowers wages by 1.4 percent, a rise of one percent in the capital stock lifts wages by 0.47 percent and a rise of one percent in the terms of trade lifts wages by 0.15 percent. Rapid growth in the labour force accounts for some of the stagnation of wages between 1984 and 1989, and slow growth in the capital stock accompanied the stagnation between 2013 and 2018. Declines in the terms of trade preceded both episodes.

Suggested Citation

  • Fisher, Lance A. & Kingston, Geoffrey, 2022. "Medium-run determinants of real wages in Australia," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 1098-1107.
    • Handle: RePEc:eee:ecanpo:v:76:y:2022:i:c:p:1098-1107
    DOI: 10.1016/j.eap.2022.09.002
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    References listed on IDEAS

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    5. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    6. W. M. Corden, 1979. "Wages and Unemployment in Australia," The Economic Record, The Economic Society of Australia, vol. 55(1), pages 1-19, March.
    7. James Bishop & Iris Chan, 2019. "Is Declining Union Membership Contributing to Low Wages Growth?," RBA Annual Conference Papers acp2019-06, Reserve Bank of Australia.
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    More about this item

    Keywords

    Consumer wages; Stagnant wages; Value marginal product; Specific-factors model; Capital-intensive exports;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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