Abstract
This paper considers the effect on productivity growth of the wage moderation policy embarked upon in the Netherlands starting in 1982. The paper describes how the effect depends on the macroeconomic importance of the hold-up problem that results from specificity in factor markets. The analysis is based on a vintage model of capital with embodied technology. In a traditional vintage model, a decline in wages relative to cost of capital will delay scrapping and postpone new investment, thus reducing productivity growth in the medium term. In a recent version of the vintage model, where the specific production relationship between capital and labour gives rise to problems associated with appropriability of rents, institutionalised wage moderation will increase new investment and improve productivity. A preliminary analysis of micro-level data of industrial firms does not yet lead one to reject the important role of specificity.
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Bartelsman, E.J. (2000). Productivity and Specificity in Factor Inputs. In: van Ark, B., Kuipers, S.K., Kuper, G.H. (eds) Productivity, Technology and Economic Growth. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-3161-3_8
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DOI: https://doi.org/10.1007/978-1-4757-3161-3_8
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