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Labor Market Institutions and Wage-led Growth: A Panel Cointegration Approach

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Authors
Shin, Hochul
Issue Date
2019
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, vol.32, no.2, pp. 225-256
Keywords
Wage-led growthMinimum wageUnion densityPanel cointegration
Abstract
This study analyzes the long-term effect of labor market institutions, such as minimum wage and union density, on inequality, investment, growth, and consumption, by using data of the member countries of the Organization for Economic Co-operation and Development since the 1970s. Labor market institution variables are used to test arguments on wage-led growth theory.
Panel cointegration approach was used to investigate the long-term effect of these variables. Results of panel cointegration test show that variables of labor market institutions are not robustly correlated to macroeconomic outcomes in the long run. This condition is not in accordance with the findings of the proponents and critics of wage-led growth. No robust evidence exists to show that increasing minimum wage and union density, which are representative policies for wage-led growth, are correlated to inequality, labor income share, consumption, investment, or growth in the long run. Estimation results of this study suggest that the empirical basis of support and criticism for wage-led growth theory is weak.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/153818
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.32 no.1/4 (2019)
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