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Abstract
ABSTRACT This paper analyses the effects of rising wages on economic growth, distinguishing between production and non-production activities and their respective wage shares. The differential impact of these wage shares on economic growth is examined using data from the US economy from 1950 to 2019, applying the ARDL bounds approach. The empirical findings support the view that functional income distribution and real GDP exhibit an inverse cointegrating relationship, where a higher wage share correlates with lower real GDP levels. This relationship is attributed to the production workers’ wage share, while the non-production workers’ wage share is not found to be statistically significant. Furthermore, the ECM model indicates a short-run inverse relationship between non-production workers’ wage share and real GDP. Hence, in the short run, a change in the wage share may affect GDP while its impact depends on whether the production or non-production workers’ wage share drives short-term changes in the aggregate wage share.
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