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Real wages, inflation and labour productivity in Australia

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Abstract:

This article presents an analysis of real wages, inflation and labour productivity interrelationships using cointegration, Granger causality and, most importantly, structural change tests. Applications of tests to Australian data over the 1965 to 2007 period corroborate the presence of a structural break in 1985 and show that a 1% increase in manufacturing sector real wages led to an increase in manufacturing sector productivity of between 0.5% and 0.8%. Comparable estimates for the effect of inflation on manufacturing sector productivity have limited statistical significance. Granger causality test results suggest that real wages and inflation both Granger cause productivity in the long run.

Keywords: C50; E23; Granger causality; cointegration; inflation; labour productivity; real wages

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.568405

Affiliations: Department of Economics,School of Business and Law, Auckland University of Technology, Private Bag 92006Auckland 1142, New Zealand

Publication date: August 1, 2012

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