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Title: Wage Growth, Productivity Growth, and the Evolution of Employment

Author(s): Martin F Hellwig and Andreas Irmen

Publication Date: August 2001

Keyword(s): employment, endogenous technical change, perfect competition, productivity growth and wages

Programme Area(s): Industrial Organization and International Macroeconomics

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.

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Bibliographic Reference

Hellwig, M and Irmen, A. 2001. 'Wage Growth, Productivity Growth, and the Evolution of Employment'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2927