Asymmetric nexus between wages and productivity in the context of the global financial crisis

Abstract

In the context of the breakdown of the wage-productivity nexus since the 2008–09 Global Financial Crisis, this study analyzes that nexus in the UK by accounting for potential asymmetries and nonlinearities. Employing a NARDL framework and data from 2000Q1 to 2018Q4, our key findings suggest that aggregate productivity and productivity within the retail sector have a significant and positive impact on aggregate wages and wages within the retail sector. However, there are important asymmetries and nonlinearities. The impact of productivity on wages in the retail sector is found to be many times smaller than that of aggregate productivity on aggregate wages across the economy as a whole. Economic growth, inflation and unemployment rates are found to have effects on wage growth over the short term. In the long run, it is productivity that is the sole statistically significant influence on wages. Our findings contribute to the debate on the productivity-wage nexus and have profound implications for the labour market and wage policies.