Abstract
PurposeTotal factor productivity (TFP), for a country and for a firm as well, is a crucial element for economic growth by inducing high output. Actually, workers' effort is among the important factors that positively influence the TFP.Design/methodology/approachIn this paper, the authors assume that the wage bonus enhances the worker's effort. Wage bonus is an incentive mechanism and plays a role in the TFP as is shown in a recent paper by Le Van and Pham (2021). The firm will maximize its profits. The supplies of capital and workers are exogenous. At equilibrium, the authors obtain that wage bonus has positive effects on output, labor productivity and price of the output.FindingsThe wage bonus system can make the optimal sequence of outputs grow without bounds. And if the optimal sequence converges to a steady state, this one can be characterized by higher output per capita than that in the steady state without the bonus.Originality/valueIn particular, the result show if, thanks to the wage bonus externality effect, the production may become of increasing returns and if the incentive mechanism is very strong, any optimal path of physical capitals will converge to infinity.
Highlights
Productivity is a key concept in economics
Let us recall that the total factor productivity (TFP) is the portion of growth, which is not explained by growth in inputs used in the production process
We propose to introduce an incentive mechanism by a wage bonus system
Summary
Productivity is a key concept in economics. It is crucial for economic growth since it induces high output of the firms. 2. Total factor productivity and economic growth This study employed Solow (1957) to clarify the relationship between TFP and economic growth. TFP is the portion of growth in output not explained by growth in traditionally measured inputs of labor and capital used in production. By referring to the concepts (knowledge, human capital and management) introduced by Romer (1986), Lucas (1988) and Bloom, Eifert, Mahajan, McKenzie & Roberts (2013), they propose a production function Y 5 AKαNβ where the TFP is A ≡ 1⁄2amζαðθhÞβ, where a is a normalization constant, m is an indicator of the management quality, h is the human capital, ζ is the quality of the technology of the physical capital and θ is the workers effort.
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