DP2031 Wages and Productivity Growth in a Competitive Industry

Author(s): Helmut Bester, Emmanuel Petrakis
Publication Date: December 1998
Keyword(s): industry dynamics, Process Innovation, Wages
JEL(s): D24, D41, D92, J30
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2031

Our model studies the evolution of productivity growth in a competitive industry. The exogenous wage rate determines the firms' engagement in labour productivity enhancing process innovation. There is a unique steady state of the industry dynamics, which is globally stable. In the steady state, the number of active firms, their unit labour cost and supply depend on the growth rate but not on the level of the wage rate. In addition to providing comparative statics of the steady state, the paper characterizes the industry's adjustment path.