Abstract
Labor productivity is important as it is the major factor determining nations' living standards. This study analyzes the factors affecting labor productivity in Pakistan using time series data. ARDL model is applied for estimation of the long run relationship of variables for the period 1981-2018. Data have been taken from the Handbook of Statistics of State Bank of Pakistan and various economic surveys of Pakistan. The findings show that wages, human capital investment, labor force participation, and inflation significantly affect labor productivity. The results indicate that wage rate has a positive effect on labor productivity, and human capital investment also is positively related to labor productivity. At the same time, labor force participation and inflation are negatively related to labor productivity. These findings imply that labor productivity can be raised by increasing the wage rate and investing more in human capital. Results are consistent with efficiency wage theory and human capital theory.
Highlights
Labor productivity has become a dominant factor that affects the competitiveness of the industry and affects profitability of firms due to increasing competition in international markets
The findings show that wages, human capital investment, labor force participation, and inflation significantly affect labor productivity
The results indicate that wage rate has a positive effect on labor productivity, and human capital investment is positively related to labor productivity
Summary
Labor productivity has become a dominant factor that affects the competitiveness of the industry and affects profitability of firms due to increasing competition in international markets. Heshmati and Rashidgalan (2018) analyzed the labor productivity in the manufacturing sector of Kenya They used cross sectional data and revealed that wage rate, education, training and capital intensity were main determinants and positively influenced the labor productivity. The study revealed that human capital had a positive and significant influence on labor efficiency Their finding revealed that education and health played an important role to enhance the labor productivity in Malaysia. Ismail (2009) investigated the influence of human capital on output growth and labor productivity in the manufacturing and service sectors in Malaysia. Results of the study showed that human capital and capital labor ratio had a positive association with output growth and labor productivity. Given the trends in labor productivity, the objective of this study is to find out the determinants of labor productivity in Pakistan
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