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Wage Growth, Productivity Growth, and the Evolution of Employment

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  • Hellwig, Martin
  • Irmen, Andreas

Abstract

This Paper studies the impact of wage growth on the evolution of employment in an intertemporal general-equilibrium model with endogenous productivity growth. For real wage growth above laissez-faire levels, we obtain steady-state equilibria in which productivity grows at the same rate as wages, the real interest rate is below the laissez-faire level, and so is the common growth rate of consumption, demand, and output. In these steady-state equilibria employment contracts at a constant rate equal to the difference between the growth rates of productivity and output. This contrasts with the view that equality of wage growth and productivity growth is a condition for constant employment.

Suggested Citation

  • Hellwig, Martin & Irmen, Andreas, 2001. "Wage Growth, Productivity Growth, and the Evolution of Employment," CEPR Discussion Papers 2927, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2927
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    Cited by:

    1. Thomas Habanabakize & Daniel Francois Meyer & Judit Oláh, 2019. "The Impact of Productivity, Investment and Real Wages on Employment Absorption Rate in South Africa," Social Sciences, MDPI, vol. 8(12), pages 1-15, December.
    2. Koeniger, Winfried, 2002. "Defensive Innovations," IZA Discussion Papers 454, Institute of Labor Economics (IZA).
    3. Martin Hellwig, 2004. "The Relation between Real Wage Rates and Employment: An Intertemporal General‐ Equilibrium Analysis," German Economic Review, Verein für Socialpolitik, vol. 5(3), pages 263-295, August.
    4. Luciano Fanti & Luca Gori, 2011. "On economic growth and minimum wages," Journal of Economics, Springer, vol. 103(1), pages 59-82, May.
    5. Antimiani, Alessandro & Cernat, Lucian, 2017. "Liberalizing global trade in Mode 5 services: how much is worth?," Conference papers 332872, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Irmen Andreas, 2020. "Endogenous task-based technical change—factor scarcity and factor prices," Economics and Business Review, Sciendo, vol. 6(2), pages 81-118, June.
    7. Lutz G. Arnold, 2006. "Does the Choice between Wage Inequality and Unemployment Affect Productivity Growth?," German Economic Review, Verein für Socialpolitik, vol. 7(1), pages 87-112, February.
    8. repec:bla:germec:v:7:y:2006:i::p:87-112 is not listed on IDEAS
    9. Jagannath Mallick, 2024. "Impact of economic globalisation and productivity on labour share in India and China," Indian Economic Review, Springer, vol. 59(1), pages 137-168, June.

    More about this item

    Keywords

    Endogenous technical change; Perfect competition; Productivity growth; Wages; Employment;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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