Marginal Product Of Labor Research Articles

Trade and inequality in an overlapping generations model with capital accumulation

AbstractWe study the lifecycle aspect of within‐country inequality that stems from capital and labor services supplied by individuals. Our environment is a combination of a multicountry trade model and an overlapping generations model with production and capital accumulation. Trade liberalization increases the measured total factor productivity in each country, which increases the marginal product of capital and incentivizes capital accumulation. Higher capital stock and higher measured productivity raise the marginal product of labor and, hence, wages. Inequality, measured by the ratio of old agents' income to young agents' income, evolves over time due to capital accumulation during the transition from autarky to an open‐economy world. Immediately after liberalization, inequality increases. Over time, capital accumulates at a diminishing rate and inequality declines.

Monopsony Power in the Labor Market: From Theory to Policy

Labor markets are not perfectly competitive: Monopsony power enables employers to pay workers less than the marginal revenue product of labor. We review three theoretical frameworks explaining monopsony power. Oligopsony models attribute it to strategic interactions among a limited number of firms. Job differentiation models cite imperfect job substitution and heterogeneous worker preferences. Search-and-matching models point to search frictions hindering instantaneous access to all available jobs. We then develop a theory-informed discussion of the empirical evidence on antitrust policies, policies that reduce barriers to job switching, and policies countering monopsony's effects on workers. Preventing mergers and regulating noncompetition agreements can increase wages by preserving competition among employers. Minimum wages can mitigate the effect of monopsony power by increasing wages without reducing employment. The insights garnered from both theoretical models and empirical evidence offer a road map for crafting policies that can enhance competition in the labor market.

Learning From Ricardo and Thompson: Machinery and Labor in the Early Industrial Revolution and in the Age of Artificial Intelligence

David Ricardo initially believed machinery would help workers but revised his opinion, likely based on the impact of automation in the textile industry. Despite cotton textiles becoming one of the largest sectors in the British economy, real wages for cotton weavers did not rise for decades. As E.P. Thompson emphasized, automation forced workers into unhealthy factories with close surveillance and little autonomy. Automation can increase wages, but only when accompanied by new tasks that raise the marginal productivity of labor and/or when there is sufficient additional hiring in complementary sectors. Wages are unlikely to rise when workers cannot push for their share of productivity growth. Today, artificial intelligence may boost average productivity, but it also may replace many workers while degrading job quality for those who remain employed. As in Ricardo's time, the impact of automation on workers today is more complex than an automatic linkage from higher productivity to better wages.

The Effect of Export Market Access on Labor Market Power: Firm-level Evidence from Vietnam

We examine the impact of an export market expansion created by the US-Vietnam Bilateral Trade Agreement (BTA) on labor market competition among Vietnamese manufacturing firms. We measure distortionary wedges between equilibrium marginal revenue products of labor (MRPL) and wages nonparametrically and find that the median firm pays workers 59% of their MRPL. The BTA permanently decreases labor market distortion in manufacturing by 3.4%, mainly for domestic private firms. The median distortion is 26% higher for women than men, and the decline in distortion for women drives the overall distortion reduction. We shed some light on the mechanisms for these results.

Labor market monopsony power in the manufacturing sector of four Sub‐Saharan African countries

AbstractWe estimate labor market monopsony power among manufacturing firms in four Sub‐Saharan African countries using a parametric production function approach on panel dataset. Pooled estimate suggests that wages are approximately 38 percent of the marginal revenue product of labor, implying a labor supply elasticity of 0.62. Nonparametric robustness checks indicate these results are robust to concerns over parametric model misspecification. Departure from competitive labor market leads to approximately 50.80 percent higher employer rent, 75.61 percent lower employee rent, and 15.95 percent deadweight loss. Overall, our results are suggestive of monopsonistic labor markets.

Organized Labor, Labor Market Imperfections, and Employer Wage Premia

This article examines how collective bargaining through unions and workplace codetermination through works councils relate to labor market imperfections and how labor market imperfections relate to employer wage premia. Based on representative German plant data for the years 1999–2016, the authors document that 70% of employers pay wages below the marginal revenue product of labor and 30% pay wages above that level. Findings further show that the prevalence of wage markdowns is significantly smaller when organized labor is present, and that the ratio of wages to the marginal revenue product of labor is significantly larger. Finally, the authors document a close link between labor market imperfections and mean employer wage premia, that is, wage differences between employers corrected for worker sorting.

СОЦИАЛЬНО-ЭКОНОМИЧЕСКИЕ АСПЕКТЫ РОСТА ПРОИЗВОДИТЕЛЬНОСТИ ТРУДА

The subject of the study is the main social and economic aspects of labor productivity growth in the Russian economy. The purpose of the paper is to substantiate the dependence of some significant social processes on increasing the level of labor productivity in the country’s economy. The relevance of the study is associated with the need for a clearer awareness of the need for essentially no alternative measures to increase labor productivity, both on the part of the state and business. The scientific novelty of the article lies in the clear identification of connections between the growth of aggregate labor productivity, and economic and social processes: achieving sustainable competitiveness of the country’s economy, curbing inflation, overcoming mass poverty, lowquality labor migration, ensuring a high level of demand for productive labor. The research reveals the practical significance of such theoretical categories as the marginal product of labor, the marginal value of labor in maintaining widespread employment in the economy, and labor productivity for the competitiveness of the economy. The research methods are analysis, systematization, synthesis, induction, and deduction. As a result of the study, the key role of increasing general economic labor productivity to streamline some pressing social processes and achieve positive economic and social indicators was identified and substantiated.

An analysis of the gender layoff gap implied by a gender gap in wage bargaining

The assumption that wage bargaining power is greater for men than for women yields a novel, mechanical implication regarding the gender wage gap: there should also be a gender layoff gap. If women with the same marginal product of labor as men exercise less bargaining power and consequently earn lower wages, then female workers should on average be more profitable for a firm. When conditions reduce labor demand, the firm should therefore prefer to lay off its male workers first. I show that this is consistent with the data for the United States from 1982–2019. A calibration exercise based on the gender gap in layoff rates suggests that the female bargaining share has risen from 14% lower to 6% lower than the male share over time.

International Wage Disparities, Resource Depletion and Human Rights: Are They Linked?

Despite a growing acknowledgement of inequality’s impact on the realisation of human rights, an international ‘equal pay for equal work’ principle is missing from human rights discourse, including the discourse of human rights practitioners and scholars who have highlighted human rights silence on vertical inequalities. The article asserts that this silence may be informed by the neoclassical assumption that disparities of wage are determined by the marginal productivity of labour. Moreover, the article argues that wage differential infringes on environmental rights, as it forces low-wage economies to exchange more of their resources for fewer resources through Ecologically Unequal Exchange (EUE).

Financial Constraints, Investment Climate and Firm Productivity of Small and Medium Enterprises (SMEs) in India

The study’s major aim is to explore the effects of financial constraints and the investment climate conditions on resource misallocation and productivity of Indian Small and Medium Enterprises on a larger sample of 6,932 firms using data from the World Bank Enterprises Survey, 2014. The current study employs Hsieh and Klenow model (2009) and Stochastic Frontier Analysis to measure the distortion in input misallocation and firm productivity, respectively. The study’s major findings suggest a distortion of resources in capital and labour, but the extent of misallocation is more significant in the case of capital. Financial constraint significantly affects the marginal productivity of capital and labour and firms’ total factor productivity. Investment climate conditions such as red tape and harmful competition are critical to achieving the productivity gap of capital. Further, red tape in the system adversely affects the efficiency and productivity of firms. Hence, in addition to access to finance, focus on investment climate conditions such as red tape and harmful competition should be given while framing policies to support Small and Medium Enterprises in India.

Stagnant wages in the face of rising labor productivity: The potential role of industrial robots

Over the past decades, labor productivity and per capita GDP have increased steadily, while real wages for most workers have remained stagnant. This challenges conventional economic wisdom according to which the remuneration of a production factor is determined by its productivity. Considering industrial robots as a substitute for workers allows reconciling the two trends. Industrial robot use reduces the marginal product of labor, whereas it raises output per hour worked. Using data for the United States, we show that a sizable part of the observed wedge between wages and labor productivity can be explained using such a framework.

Monopsony power and workers’ switching costs: Evidence from hospitals in China

Using a Chinese hospital-level data set from 2007 to 2018, we measure the monopsony power of hospitals over health care workers by estimating the labor supply elasticity with a hospital-specific labor demand instrument constructed from the number of emergency department visits. The two-stage least squares estimation results show that hospitals have market power over their employees with an implied labor supply elasticity of 1.14, which implies that the wage accounts for only 53% of the marginal revenue product of labor, significantly below the competitive level. More importantly, we find that hospitals’ monopsony power decreases when physicians have the freedom to practice at other hospitals while retaining their positions in their primary hospitals (multi-sited practice policy). Overall, we find that workers’ cost of switching away from employers explains the degree of monopsony power of employers over workers.

Labor elasticities, market failures, and misallocation: Evidence from Indian agriculture

AbstractThis article presents evidence of misallocation across households in rural Indian agriculture. I show that household demographics predict own farm labor demand for smallholder farmers but not non‐smallholder farmers. A simple model of labor allocation predicts a clear consequence of this duality: smallholder farmers will reallocate labor across plots less in response to price changes than non‐smallholders. Detailed household panel data confirms this theoretical prediction. Three additional facts suggest that a lack of off‐farm labor opportunities may be partly responsible for the behavior of smallholders, leading smallholders to over allocate labor to agricultural production. First, smallholders report fewer hours of involuntary unemployment when their own crop prices increase. Second, yield is substantially higher for smallholders on plots of the same size. Finally, estimated marginal revenue products of labor are consistently lower for smallholders.

A step toward inclusive green growth: can digital finance be the main engine?

Inclusive green growth (IGG) has become a worldwide consensus to achieve the target of sustainable development goals. Although the prominent role of digital finance (DF) against the pandemic has drawn considerable attention from policymakers, its plausible effect on IGG and underlying mechanisms have not been distinctly explored in academia. The aim of the study is to explore the causal effect of DF on IGG based on prefecture city-level data from 2011 to 2019 in China. To this end, we employed the non-radial direction distance function approach within the global production technology to evaluate the aggregate IGG performance and its three sub-dimensions. The empirical results demonstrate that DF exerts a significant promotional effect on urban IGG. This finding continues to survive in an extensive set of robustness checks using an alternative dependent variable, model specifications, instrumental variable, and difference-in-difference approaches to address the endogeneity concerns. Meanwhile, sub-dimensional regressions show that this positive effect is driven predominantly by the scale economy of DF, while the depth of usage and digitalization playing a minor role. Moreover, we uncover that DF enhances IGG by leveraging greater marginal product of labor rather than capital, improving environmental externalities, increasing fuller employment, and reducing rural-urban income inequality. However, we also reveal the dark side of DF on imbalanced regional development. The promotional effect of DF on IGG is only prominent for cities with better inherent comparative advantages, and we are thus likely to see a widening digital divide resulting from the "Matthew effect" on regional disparity without timely policy interventions.

The Non-Linear Relationship between Air Pollution, Labor Insurance and Productivity: Multivariate Adaptive Regression Splines Approach

This study explores the non-linear relationship between air pollution, socio-economic factors, labor insurance, and labor productivity in the industrial sector in Taiwan. Using machine learning, specifically multivariate adaptive regression splines (MARS), provides an alternative approach to examining the impact of air pollution on labor productivity, apart from the traditional linear relationships and parametric methods employed in previous studies. Examining this topic is imperative for advancing the knowledge on the effects of air pollution on labor productivity and its association with labor insurance, employing a machine learning framework. The results reveal that air pollution, particularly PM10, has a negative impact on labor productivity. Lowering the PM10 level below 36.2 μg/m3 leads to an increase in marginal labor productivity. Additionally, the study identifies labor insurance as a significant factor in improving productivity, with a 9% increase in the total number of labor insurance holders resulting in a substantial 42.9% increase in productivity. Notably, a link between air pollution and insurance is observed, indicating that lower air pollution levels tend to be associated with higher labor insurance coverage. This research holds valuable implications for policymakers, businesses, and industries as it offers insights into improving labor productivity and promoting sustainable economic development.

Application of the vector-autoregression VAR model in the analysis of unemployment hysteresis in the context of Okun’s Law

Unemployment is an important macroeconomic issue both in theoretical terms and for economic reality. On the theoretical ground, the unemployment rate, which is a measure of the share of unemployed units of the labour supply in the economy, determines the output gap at a certain adjustment parameter determined by the marginal productivity of labour. One of the causes of rising or persistent unemployment in the economy is the phenomenon of unemployment hysteresis, which occurs as a result of changes in the marginal disutility of labour, the strength of the wage bargain and other exogenous conditions arising in previous periods. The purpose of the study conducted in the following paper is to investigate the phenomenon of hysteresis in the labour market by analysing the significance of the impact of the unemployment rate in previous periods. In addition, the work aims to study Okun’s Law as an effect of production dynamics on the unemployment rate. The study of the dependence was carried out through the estimation of a macroeconometric time series model—vector-autoregression (VAR) on the example of statistical data for Poland obtained from Statistics Poland (Stat.gov.pl) and complied raports about national accounts in the quarterly sequence for the years 2015–2021.

Extraordinary economy policies amid Covid-19 pandemic crisis: economic growth, labour productivity and elasticity of substitution

Purpose- This study investigates current financial, fiscal and monetary policies implemented to enhance growth rate in developed economies. First main theoretical findings of neoclassical growth theory are reconsidered. Second, current economy policies from the perspectives of Central banks and Treasury departments are analyzed. Finally, the relationship between these two is investigated and whether the policies are adequate to theoretical findings is examined. Methodology- From the perspective of descriptive statistics, first; time evlotion of labor's share of output from 1947Q1 through 2016Q3 is analyzed. Second, time evolution of percentage change in labor productivity with respect to real hourly compensation are considered from 1948Q1 through 2022Q1. In addition, to identify the accelerating gap between labor productivity and compensation over recent decades, annual index levels from 1973 to 2022 for labor productivity with respect to real hourly compensation are taken into account. Third, the phase-space representation of rate of real growth for output per capita is developed. In methodological perspective, both time-space and phase-space analyses on output per capita, labor productivity and labor compensation clear the way to establish a theoretical model, which explains the interaction between these variables based on constant elasticity of substitution production function. Findings- For case of elasticity of substitution lower-than-unity, the relationship between rate of real growth for marginal productivity and average productivity of labor is obtained and is used to enlighten current U.S. monetary and fiscal policy implementations. Conclusion- The results demonstrate that amid Covid-19 pandemics, U.S. fiscal policy and monetary policy do not optimally match and hence the fiscal policy should be calibrated. U.S. fiscal policy increased minimum wages and U.S. monetary policy addressed tighter and perfectly competitive labor market. These two policies do not coincide in terms of efficiency. In other words, simultaneous application of these two policies will not give desired compound result. Keywords: Economic growth, labor productivity, fiscal policy, labor compensation, monetary policy JEL Codes: E62, O40, O41

Agricultural Production Optimization and Marginal Product Response to Climate Change

This study introduces a non-parametric approach to estimate the marginal products of agricultural inputs (agricultural land, labor, machinery, fertilizers and pesticides) in Jiangsu province, China. To study the effects of climate change on these marginal products, we used a fixed-effects regression model. The results show an upward trend of inefficiency in Jiangsu’s agricultural production from 2001 to 2018. The marginal products of agricultural land, labor, machinery, chemical fertilizers and pesticides are 1.54 thousand USD per hectare, 0.32 thousand USD per person, 0.31 thousand USD per kWh, 21.63 thousand USD per ton and 0.88 USD per ton, respectively. Climate change refers mainly to temperature and precipitation, and we analyzed their effects on the marginal products. Temperature has a statistically significant positive effect on the marginal product of fertilizers and machinery, whereas precipitation harms the marginal product of land. Two inputs (i.e., land and fertilizer) are critical driving forces in agricultural production. This study recommends government action to improve agricultural efficiency and ensure climate change adaptation.

Optimal long-run money growth rate in a cash-in-advance economy with labor-market frictions

AbstractWe revisit the Friedman rule in a labor search model and extend Heer (2003), Cooley and Quadrini (2004), and Wang and Xie (2013) to one that allows for endogenous growth. We show that, even without a liquidity effect or a CIA constraint on firms’ wage payment, our model offers a different channel for moderate money growth to increase welfare. Intuitively, in a one-sector endogenous growth economy, the technology is of constant returns with respect to capital. When the labor market is frictional, a moderate increase in money growth induces an expansion in vacancy and employment. Labor and capital are complements in production. With an increase in employment, when the technology is neoclassical, the decreasing return in capital leads to a lower marginal product of labor. However, in an endogenous growth framework wherein the technology exhibits socially constant returns in capital, the marginal product of labor is constant. Due to a constant marginal product of labor, modest inflation raises employment, enlarges economic growth, and increases welfare. Moreover, the optimal long-run inflation rate departs from the Friedman rule, even when the Hosios rule holds. Finally, we find that our model with sustainable growth fits the data better than that without sustainable growth.

Bequests or education

This paper shows that, when parents can endow their offspring with bequests and human capital, markets cannot deliver (generically under laissez-faire) the planner’s choice, if educational investments affect total factor productivity—as empirical evidence establishes. Moreover, for a human capital production function close enough to affine (around market and planner steady states with similar fertilities), the market steady state wage is higher than the marginal productivity of labor at the planner’s steady state, so that the market steady state human capital is too low. In other words, the market misses the planner’s allocation by leading households to transfer to their offspring more in bequests and less in education than would be optimal. These results obtain in spite of parents perfectly internalising (1) the value for their children of their bequests and educational investment, but not (2) the externality on total factor productivity—nor hence on factor prices. The planner’s allocation can, nonetheless, be decentralised subsidising labor income through a lump-sum tax on saving returns that reduces bequests. An estimate of the subsidy needed—for standard functional forms and parameter values estimated from US data—suggests a sizeable market inefficiency.