Wage, productivity and inequality Dr Zulfan Tadjoeddin (University - - PowerPoint PPT Presentation

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Jan 20, 2023 252 likes •554 views

Wage, productivity and inequality Dr Zulfan Tadjoeddin (University of Western Sydney) ECONOMIC AND SOCIAL COUNCIL 2015 INTEGRATION SEGMENT Achieving sustainable development through employment creation and decent work for all Indonesia

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Wage, productivity and inequality

Dr Zulfan Tadjoeddin

(University of Western Sydney)

ECONOMIC AND SOCIAL COUNCIL 2015 INTEGRATION SEGMENT “Achieving sustainable development through employment creation and decent work for all” Indonesia country level consultation 24-25 February 2015 Jakarta, Indonesia

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Four Empirics

1) Inequality is rising; the true level of economic inequality is higher 2) De-linking between wage and productivity 3) Conventional wisdom of negative relationship between wage and employment But: 4) Large-medium establishment of manufacturing sector: the conventional wisdom does NOT hold.

 Productivity-wage-employment, all, move together, while the economy expands

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(1) Inequality

Inequality is rising; the true level of economic inequality is higher

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Gini (expenditure – Income – Asset???)

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Gini (expenditure – Income – Land)

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Median to mean ratio of real earnings across employment status

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(2) The de-linking:

verall economy

most of economic sectors most of provinces

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Pre & post crisis

Pre 1997/8: Growth in wage earnings kept its

pace with productivity growth

2001-12: real earnings only grew at 0.2%

annually, while productivity grew at an annual rate of 5.4 %, comparable to the pre-crisis period.

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De-linking between wage and productivity (2001 = 100)

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Wage as % of productivity

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Wage as % productivity in 33 provinces 2001-11 1) Decreasing slope: 17 prov (growth centre) 2) Constant slope: 8 prov 3) Increasing slope: 8 prov (  productivity)

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Decreasing slope in 17 provinces

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Constant slope in 8 provinces

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Increasing slope in 8 provinces but, due to declining productivity

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(3) The de-linking explains the conventional wisdom of negative relationship between wage and employment

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Panel data (33 provinces; 2001-2012) 9 economic sectors

Wage = f { Productivity, lag-Wage)
Employment = f {Wage, lag-Employment)

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Panel data (ISIC 3 level; 2001-2012) LM manufacturing only

Wage = f { Productivity, lag-Wage)
Employment = f {Wage, lag-Employment)

Ideal scenario: productivity,  wage,  employment  The importance of the modern and more organised LM manufacturing

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Remark ALL

0.002

De-linking

0.169 ***
0.043 ***

Manufacturing- ALL

0.033

De-linking

3.887 ***
0.012

Manufacturing- LARGE and MEDIUM industry

0.243 ***

NOT a case

f de-linking

0.552 *** 0.009 ***

(1) (2) (3) Endogenous Wage (System GMM) (LnW=LnProd, lagLnW) (LnE = pred_LnW, lagLnE) (LnE = LnW, lagLnE) Exogenous Wage 1st step 2nd step System GMM Prod coef. Wage coef. Wage coef.

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Marginal product, average product and wage

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Rightward shifts of MP & AP

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Demand & supply of labour

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Minimum wage

1) Positively correlate with productivity Additional benefits 2) Lowers poverty 3) Lowers inequality

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Productivity

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