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Luis A. Gil-Alana, Marinko Škare
Testing the great decoupling: a long memory approach
Empirica, 2018, 45(4), pp.801-820,
The disconnection between productivity and workers' compensation after 1980 is a fact not only for the USA, Canada, Japan but also for Europe. The level of the decoupling between labour productivity and real hourly compensation is highest in the USA and Japan and lowest in Norway and Germany. This study investigates the great decoupling phenomena between 1950 and 2014 for eight economies with available time series data. The results should assist policy makers in developing efficient wage-setting mechanisms and help researchers in the field of wage moderation policy and the great decoupling. For this purpose we use fractional integration and cointegration techniques. Countries with stagnating minimum wages, rigid wage moderation policy and a high level of technological progress (strong total factor productivity growth) register higher wage stagnation in relation to labour productivity. Policy makers should be extremely careful when using wage moderation policy to improve a country's competitiveness and should monitor the wage stagnation behind labour productivity (great decoupling) since workers have been producing more but receiving significantly less since 1980. The great decoupling is more prominent today and it is constantly increasing not just in the USA and Japan but worldwide.
Research group:Labour Market, Income and Social Security

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