The long-run relationship between labor productivity and real wages: evidence from Latin America
Authors
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Fernando Sossdorf Gonzalez
Universidad de Chile
https://orcid.org/0009-0008-4423-7348
Abstract
One of the classical problems in political economy has been understanding the relationship between wages and labor productivity. If both variables grow in tandem, the labor income share in GDP remains unchanged. However, empirical evidence from the United States, Europe, and Japan has shown a decoupling where increases in labor productivity are not fully reflected in rises in real labor incomes. This article seeks to determine whether a similar trend exists in Latin America, investigating to what extent real wage growth has been associated with labor productivity growth in eight Latin American countries from 1975 to 2018, while controlling for other factors affecting compensation growth. The results reveal significant wage trajectories and productivity growth differences among these countries. Although the decoupling between productivity and wages is evident, its magnitude varies: in five countries, productivity increases do not fully translate into wage growth, while in the other three, wages rise more than productivity. A decomposition analysis of the decoupling in Argentina, Brazil, and Mexico identifies that changes in the share of labor income over total income and wage inequality are the most relevant factors explaining the gap between productivity and wages.
Keywords:
Labor productivity, Real wages, Labor share, Wage inequalityReferences
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