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Discussion Paper Details

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Title: Wages and Productivity Growth in a Dynamic Monopoly

Author(s): Helmut Bester and Emmanuel Petrakis

Publication Date: February 2001

Keyword(s): Dynamic Programming, Innovation, Labour Productivity, Monopoly, Wage Differentials and Wages

Programme Area(s): Industrial Organization

Abstract: This Paper studies the inter-temporal problem of a monopolistic firm that engages in productivity-enhancing innovations to reduce its labour costs. If the level of wages is sufficiently low, the firm's rate of productivity growth approaches the rate of wage growth and eventually the firm reaches a steady state where its unit labour cost remains constant over time. Otherwise, it will gradually reduce its innovation effort over time and ultimately terminate production. Productivity-dependent wage differentials do not affect productivity growth in the steady state; they increase, however, the firm's long-run equilibrium cost level.

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Bibliographic Reference

Bester, H and Petrakis, E. 2001. 'Wages and Productivity Growth in a Dynamic Monopoly'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2707