Labour productivity and wage determination in manufacturing units

Anchal Yadav

doi:10.36948/ijfmr.2021.v03i03.75045

Labour productivity and wage determination in manufacturing units

Author(s)	Dr. Anchal Yadav
Country	India
Abstract	This study analyzes the connection between productivity and wages, specifically the effect of productivity change in the manufacturing sector on wage growth. Amid mounting anxiety about the widening wage-productivity gap in the labor market, we are interested to inquire into whether the classic conception of wage as equal to the marginal product of labor will hold in a world where institutional distortions and technological advancement interfere. As will be illustrated in this paper, the analysis can be carried out on panel firm-level data from the manufacturing industry, where productivity is measured by real value added per worker and wage is defined as compensation. This research is designed to examine the relation between productivity and wage with respect to the manufacturing industry, in other words, the impact of productivity change in the manufacturing industry on wage growth. In light of growing concerns about the increasing wage-productivity gap in the labor market, we are eager to find out whether the conventional theory that wage equals to the marginal product of labor still applies when institutional distortions and technological progress come into play. As will be illustrated in this paper, such analyses can be performed based on panel firm-level data from the manufacturing industry, where productivity is measured by real value added per worker and wage is defined as compensation. Including the bonus paid by the firms to their workers. Using the fixed effects and dynamic panel techniques, the econometrics technique takes care of any omitted variable problem and simultaneous problems in the analysis of the research topic. From the results, the wage labor productivity coefficient is found to be positive but very poor and different based on the form of the firms. Wages therefore can be said not to react reflexively to changes in productivity. This follows well with what previous studies have found regarding the way through which one can analyze the link between the two variables. That is through the combination of institutional, failure, and technology approach.
Keywords	Labour Productivity; Wage Determination; Manufacturing Sector; Wage–Productivity Nexus; Firm-Level Panel Data; Fixed Effects Model; Dynamic Panel Estimation; Industrial Labour Economics; Technological Change; Institutional Factors.
Published In	Volume 3, Issue 3, May-June 2021
Published On	2021-05-11
DOI	https://doi.org/10.36948/ijfmr.2021.v03i03.75045

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Labour productivity and wage determination in manufacturing units

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