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The Link Between Wages and Labour Productivity: an Analysis of the Malaysian Manufacturing Industry

Ho, Lee Peng, and Yap, Su Fei, (2001) The Link Between Wages and Labour Productivity: an Analysis of the Malaysian Manufacturing Industry. Malaysian Journal of Economic Studies . 4p..

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Official URL: http://findarticles.com/p/articles/mi_qa5520/is_200106/ai_n21479558/pg_1?tag=artBody;col1

Affiliations

University of Malaya. Faculty of Economics and Administration
University of Malaya. Faculty of Economics and Administration

Abstract

This paper analyses both the long-run and short-run dynamics of wage formation in the Malaysian manufacturing industry as a whole and also for 13 selected sub-sectors of the industry using error correction modeling. The main objective is to investigate whether the increase in real wages commensurates with changes in labour productivity. Carneiro's ( 1998) arguments based on the union-firm wage bargaining model was adapted for this purpose. The results of the study indicate that in the long run, labour productivity is positively related to real wages. However, the increase in real wage exceeds the increase in labour productivity, causing an increase in unit labour cost. Unemployment exerts a negative effect on wages as theorised, however its low elasticity suggests some degree of stickiness in wage adjustments. Union density, as a measure of union power has a positive influence on wages. In the short run, the association between real wage changes and labour productivity increases is negative and insignificant statistically. This may be attributed to the lagged adjustment of money wages caused by collective bargaining agreements.

Item Type:Journal
Keywords:Wages, Manufactures - Malaysia, Industries - Malaysia
Subjects:H Social Sciences, Economics, Sociology
ID Code:4122

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