On Labor Productivity in OECD Countries: Panel Data Modeling

Abstract

Labor productivity is a key measure of economic performance and an essential factor of improving the living standards. High labor productivity growth rate can reflect increased use of capital, and/or a decrease in the employment of low-productivity workers. Thus, it can be said that labor productivity indicators reflect the effectiveness of labor utilization, labor cost, and revenue accumulation. This paper studies the impact of labor market conditions, economic integration, market size, and institutional quality on labor productivity in Organization for Economic Co-operation and Development (OECD) countries during the period from 2005 to 2017 by using panel data technique. The study finds that the random effects panel data model is the appropriate model to fit this data. The results suggest that average annual hours worked, labor force participation rate, and inflation rate have a negative significant impact on labor productivity in OECD countries. However, annual growth rate of GDP per capita, value added of industry, and control of corruption have a positive significant impact on labor productivity.