Impact of higher energy prices on wage rates, return to capital, energy intensity and productivity: A regional profit specification

Abstract

To take account of the interaction between energy and the aggregate economy a simple neoclassical profit maximizing model is econometrically estimated for the province of Ontario, Canada. Using this value-added specification permits the easy quantification of the impact of higher energy prices on the energy—GDP ratio, labour productivity and the factor income of labour and capital. An empirical evaluation of this profit formulation reveals that rising energy prices have caused all three of these impacts to be depressed significantly, particularly in the late 1970s.