Working Paper: CEPR ID: DP2031
Authors: Helmut Bester; Emmanuel Petrakis
Abstract: 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.
Keywords: process innovation; industry dynamics; wages
JEL Codes: O24; D41; D92; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in the wage rate (J38) | higher rate of innovation among firms (O31) |
| higher wages (J39) | enhance productivity (O49) |
| wage growth rate (J31) | long-run productivity growth (O49) |
| wage-productivity ratio (J31) | number of active firms in the market (L10) |
| past innovations (O35) | future technological advancements (O33) |
| wage growth too fast (J31) | industry may face extinction (L16) |
| moderate wage growth (J31) | stable steady state (C62) |