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The Linkage between Prices, Wages, and Labor Productivity: A Panel Study of Manufacturing Industries

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  • Jack Strauss
  • Mark E. Wohar

Abstract

This article investigates the long‐run relationship between prices and wage‐adjusted productivity as well as between real wages and average labor productivity at the industry level for a panel of 459 U.S. manufacturing industries over the period 1956‐1996. Panel reintegration test results strongly reject the null of no reintegration in the panel between both prices and wage‐adjusted productivity and between labor productivity and real wages for many (but not all) industries. Granger‐causality tests show that prices are weakly exogenous and cause movements in unit labor cost. Bidirectional Granger causality is found between real wages and productivity; however, a one‐to‐one relationship is strongly rejected between real wages and productivity. Increases in labor productivity are associated with a less than unity increase in real wages.

Suggested Citation

  • Jack Strauss & Mark E. Wohar, 2004. "The Linkage between Prices, Wages, and Labor Productivity: A Panel Study of Manufacturing Industries," Southern Economic Journal, John Wiley & Sons, vol. 70(4), pages 920-941, April.
    • Handle: RePEc:wly:soecon:v:70:y:2004:i:4:p:920-941
    DOI: 10.1002/j.2325-8012.2004.tb00612.x
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    References listed on IDEAS

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