Testing for Granger causality in quantiles between the wage share in income and productive capacity utilization

Abstract

This paper tests for Granger causality in quantiles between the wage share and capacity utilization in twelve developed countries using annual data ranging from 1960 to 2019. Instead of focusing only on the conditional mean, we test for Granger causality in the entire conditional distribution of the variables of interest. This method detects Granger causal dynamic relations in both the mean and the whole conditional distribution using bootstrap confidence intervals and the Wald test. Our results indicate that capacity utilization positively affects the wage share in eight out of the twelve sample countries. This Granger causal effect is strong and heterogeneous across quantiles, being larger for more extreme quantiles. Capacity utilization positively Granger causes the wage share in all conditional quantiles in the U.S., Sweden, and Italy. Meanwhile, the wage share negatively Granger causes capacity utilization in all conditional quantiles in Spain and in some quantiles above the median in Italy.