How effective are labor wages on labor productivity?: An empirical investigation on the construction industry of New Zealand
Abstract
This study empirically investigates (for the period of 1983–2017) the relationships between the parameters (labour wage (LW), labour productivity (LP) and unemployment (UNM) rate) of the construction sector in New Zealand. This study employs the Johansen co-integration test to determine if the relationship in the long run does exist among the investigated variables as well as to assess the relationships. The results show that the LW has a positive effect on the LP, while the UNM affects negatively, which indicates that the higher salary, the more productive labour. In other words, increase in salary stimulates the belief of the workforce that they are substantially paid for their work, which ultimately increases their trust and loyalty to the employer; hence, productivity. Moreover, the results show adverse effect of UNM on LP, which indicates that labours may also lose his/her productivity due to fear of losing his/her job. The model stability is verified by Histogram Normality Test, Breusch-Godfrey Serial Correlation, Heteroscedasticity Breusch-Pagan-Godfrey tests. Thus, the forefront of the construction sector is recommended to consider the empirical relationships determined in this study in order to improve the productivity level at various levels.
Keyword : productivity, construction industry, labour wage, unemployment, New Zealand
How to Cite
Ozturk, M. ., Durdyev, S. ., Aras, O. N. ., Ismail, S. ., & Banaitienė, N. . (2020). How effective are labor wages on labor productivity?: An empirical investigation on the construction industry of New Zealand. Technological and Economic Development of Economy, 26(1), 258-270. https://doi.org/10.3846/tede.2020.11917
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Van Biesebroeck, J. (2007). Robustness of productivity estimates. Journal of Industrial Economics, 55(3), 529–569. https://doi.org/10.1111/j.1467-6451.2007.00322.x
Wakeford, J. J. (2004). The productivity–wage relationship in South Africa: An empirical investigation. Development Southern Africa, 21(1), 109–132. https://doi.org/10.1080/0376835042000181444
Yildirim, Z. (2015). Relationships among labour productivity, real wages and inflation in Turkey. Economic Research-Ekonomska Istraživanja, 28(1), 85–103. https://doi.org/10.1080/1331677X.2015.1022401
Banaitienė, N., Banaitis, A., & Laučys, M. (2015). Foreign direct investment and growth: analysis of the construction sector in the Baltic States. Journal of Civil Engineering and Management, 21(6), 813–826. https://doi.org/10.3846/13923730.2015.1046478
Dickey, D., & Fuller, W. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057–1072. https://doi.org/10.2307/1912517
Durdyev, S. (2011). Pareto analysis of on-site productivity constraints and improvement techniques in New Zealand building industry (Master Thesis). Massey University. https://mro.massey.ac.nz/handle/10179/2882
Durdyev, S., & Ismail, S. (2016). On-site construction productivity in Malaysian infrastructure projects. Structural Survey, 34(4/5), 446–462. https://doi.org/10.1108/SS-12-2015-0058
Durdyev, S., Ismail, S., & Kandymov, N. (2018). Structural equation model of the factors affecting construction labor productivity. Journal of Construction Engineering and Management, 144(4), 1–11. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001452
Durdyev, S., & Mbachu, J. (2011). On-site labour productivity of New Zealand construction industry: Key constraints and improvement measures. Construction Economics and Building, 11(3), 18–33. https://doi.org/10.5130/AJCEB.v11i3.2120
Durdyev, S., & Mbachu, J. (2018). Key constraints to labour productivity in residential building projects: Evidence from Cambodia. International Journal of Construction Management, 18(5), 385–393. https://doi.org/10.1080/15623599.2017.1326301
Ehrenberg R. G. & Smith, R. S. (2009). Modern labor economics: Theory and public policy (10th ed.). Pearson.
Falk, A., Fehr, E., & Zehnder, C. (2005). The behavioural effects of minimum wages (IZA Discussion Paper 1625). IZA, Bonn.
Forth, J., & O’Mahony, M. (2003). The impact of the national minimum wage on labour productivity and unit labour costs. London: National Institute of Economic and Social Research. http://www.lowpay.gov.uk/lowpay/research/pdf/forth.pdf
Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424–438. https://doi.org/10.2307/1912791
Granger, C. W. (1988). Some recent development in a concept of causality. Journal of Econometrics, 39(1–2), 199–211. https://doi.org/10.1016/0304-4076(88)90045-0
Han, S., Ko, Y.-H., Hong, T., Koo, C., & Lee, S. (2017). Framework for the validation of simulationbased productivity analysis: Focused on curtain wall construction process. Journal of Civil Engineering and Management, 23(2), 163–172. https://doi.org/10.3846/13923730.2014.992468
Karaalp-Orhan, H. S. (2017). Labour productivity, real wages and unemployment: An application of bounds test approach for Turkey. Journal of Economic and Social Development, 4(2), 11–22.
Katovich, E. S., & Maia, A. G. (2018). The relation between labor productivity and wages in Brazil. Nova Economia, 28(1), 7–38. https://doi.org/10.1590/0103-6351/3943
Ma, L., Liu, C., & Reed, R. (2017). The impacts of residential construction and property prices on residential construction outputs: An inter-market equilibrium approach. International Journal of Strategic Property Management, 21(3), 296–306. https://doi.org/10.3846/1648715X.2016.1255675
MacKinnon, J. G., Hang, A. A., & Michelis, L. (1999). Numerical distribution of likelihood ratio test for cointegration. Journal of Applied Econometrics, 14(5), 563–577. https://doi.org/10.1002/(SICI)1099-1255(199909/10)14:5<563::AID-JAE530>3.0.CO;2-R
Meager, N., & Speckesser, S. (2011). Wages, productivity and employment: A review of theory and international data. European Employment Observatory Thematic expert ad-hoc paper. Institute for Employment Studies. http://ec.europa.eu/social/BlobServlet?docId=12058&langId=en
Meidner, R., & Rehn, G. (1952). Wages policy under full employment (1st ed.). William Hodge, London.
Nazarko, J., & Chodakowska, E. (2017). Labour efficiency in construction industry in Europe based on frontier methods: Data envelopment analysis and stochastic frontier analysis. Journal of Civil Engineering and Management, 23(6), 787–795. https://doi.org/10.3846/13923730.2017.1321577
Oyeranti, O. A. (2000, June). Concept and measurement of productivity in productivity and capacity building in Nigeria. Paper presented at Proceedings of the Ninth Annual Conference of the Zonal Research Units of the Central Bank of Nigeria. Abeokuta, Nigeria.
Ozturk, M., Durdyev, S., Aras, O. N., & Banaitis, A. (2019). Productivity as a determinant of labour wage in New Zealand’s construction sector. Technological and Economic Development of Economy, 25(5), 900–914. https://doi.org/10.3846/tede.2019.10297
Park, H.-S., Thomas, S. R., & Tucker, R. L. (2005). Benchmarking of construction productivity. Journal of Construction Engineering and Management, 131(7), 772–778. https://doi.org/10.1061/(ASCE)0733-9364(2005)131:7(772)
Policardo, L., Punzo, L. F., & Carrera, E. J. S. (2019). On the wage-productivity causal relationship. Empirical Economics, 57(1), 329–343. https://doi.org/10.1007/s00181-018-1428-5
Rao, B. B. (2007). Cointegration for the applied economist. Palgrave Macmillan, UK.
Rezai, A., & Semmler, W. (2007). Productivity and unemployment in the short and long run. Schwartz Center for Economic Policy Analysis. Policy Note. http://www.economicpolicyresearch.org/images/docs/research/employment/Semmler-Rezai.pdf
Rizov, M., Croucher, R., & Lange, T. (2016). The UK national minimum wage’s impact on productivity. British Journal of Management, 27(4), 819–835. https://doi.org/10.1111/1467-8551.12171
Sharpe, A., Arsenault, J-F., & Harrison, P. (2008). Why have real wages lagged labour productivity growth in Canada? International Productivity Monitor, 17, 16–27.
Shoar, S., & Banaitis, A. (2019). Application of fuzzy fault tree analysis to identify factors influencing construction labor productivity: A high-rise building case study. Journal of Construction Engineering and Management, 25(1), 41–52. https://doi.org/10.3846/jcem.2019.7785
Storm, S., & Naastepad, C. W. M. (2012). Wage-led or profit-led supply: Wages, productivity and investment. International Labour Office. Conditions of Work and Employment Series No. 36. https://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---travail/documents/publication/wcms_187309.pdf
Van Biesebroeck, J. (2007). Robustness of productivity estimates. Journal of Industrial Economics, 55(3), 529–569. https://doi.org/10.1111/j.1467-6451.2007.00322.x
Wakeford, J. J. (2004). The productivity–wage relationship in South Africa: An empirical investigation. Development Southern Africa, 21(1), 109–132. https://doi.org/10.1080/0376835042000181444
Yildirim, Z. (2015). Relationships among labour productivity, real wages and inflation in Turkey. Economic Research-Ekonomska Istraživanja, 28(1), 85–103. https://doi.org/10.1080/1331677X.2015.1022401