Real wages, inflation, and labor productivity: Evidences from Bulgaria and Romania

Chaido Dritsaki


This study examines the effect of inflation and real wages on labor productivity for two European Union(EU) countries: Bulgaria and Romania using cointegration Autoregressive Distributed Lag (ARDL) test and causality test of Toda and Yamamoto (1995). Results suggest that inflation reduces labor productivity. Moreover, the impact of wages on labor productivity is far greater the impact of inflation. Additionally, there exists unidirectional relation between inflation and real wages for Bulgaria, and real wages and labor productivity for Romania. 


Bulgaria; inflation; labor productivity; real Wages; Romania.

Full Text:



Alexander, C. O. (1993). The changing relationship between productivity, wages and unemployment in the UK, Oxford Bulletin of Economics and Statistics, 55, 87-102. 55:y:1993:i:1:p:87-102.

Bardsen, G., Hurn, S. and Mchugh, Z. (2007). Modeling wages and prices in Australia. The Economic Record, 83, 143-158. doi: 10.1111/j.1475-4932.2007. 00390.x.

Bentolila, S. and Saint-Paul, G.(2003). Explaining movements in the labor share, The B.E. Journal of Macroeconomics, 3(1), 1103-1103.

Buck, A. J. and Fitzroy, F. (1988) Inflation and productivity growth in the federal republic of Germany, Journal of Post Keynesian Economics, 10(3), 428–444. (text/html).

Brown, R.L., Durbin, J., Ewans, J.M., (1975). Techniques for testing the constance of regression relations overtime. Journal of the Royal Statistical Society. 37(2), 149–172.

Cameron, N., Hum, D. and Simpson, W. (1996). Stylized facts and stylized illusions: inflation and productivity revisited, Canadian Journal of Economics, 29(1), 152–162. doi: 10.2307/136156

Christopolous, D. K., and Tsionas, E. G. (2005). Productivity growth and inflation in Europe: Evidence from panel cointegration tests. Empirical Economics, 30(1), 137–150. doi: 10.1007/s00181-004-0227-3.

De Gregorio, J. (1992) The effects of inflation on economic growth: lessons from Latin America, European Economic Review, 36(2-3), 417–425. doi:10.1016/ 0014-2921(92)90098-H.

Dickey, D., and Fuller, W.A. (1979). Distribution of the estimates for autoregressive time series with a unit root. Journal of the American Statistical Association 74(366), 427-431.doi: 10.2307/2286348.

Dickey, D., and Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057-1072. doi: 10.2307/ 1912517.

Engle, R.F., and Granger, C.W.J. (1987). Co-integration and error-correction: representation, estimation and testing. Econometrica, 55(2): 251-276. % 3C251%3ACAECRE%3E2.0.CO%3B2-T.

Erenburg, S. J. (1998). Productivity, private and public capital and real wage in the US, Applied Economics Letters, 5(8), 491–495. openurl?genre=article& ... 40C6AD35DC6213A474B5 (text/html).

Freeman, D. G. and Yerger, D. B. (1998). Inflation and multifactor productivity growth in Germany: a response to Smyth, Applied Economics Letters, 5(5), 271–274. 40C6AD35DC6213A474B5 (text/html).

Freeman, D. G. and Yerger, D. B. (2000). Does inflation lower productivity? Time series evidence on the impact of inflation on labour productivity in 12 OECD nations, Atlanta Economic Journal, 28(3), 315–332. doi: 10.1007/BF02298324.

Gujarati, D.N. (2004). (Fourth Edition). Basic econometric, New York: The McGraw-Hill companies Inc.

Gunay, A., Metin-Ozcan, K. and Yeldan, E. (2005) Real wages, profit margins and inflation in Turkish manufacturing under post liberalization, Applied Economics, 37(16), 1899–1905. 10.1080/00036840500217903 (text/html).

Hall S. G. (1986) An application of the Granger and Engle two-step estimation procedure to United Kingdom aggregate wage data, Oxford Bulletin of Economics and Statistics, 48(3), 229-239. RePEc: bla:obuest:v:48:y:1986:i:3:p:229-39.

Hondroyiannis, G. and Papapetrou, E. (1997). Seasonality cointegration and the inflation, productivity and wage growth relationship in Greece, Social Science Journal, 34(2), 235–247.doi:10.1016/S0362-3319(97)90053-7.

Hondroyiannis, G. and Papapetrou, E. (1998). Temporal causality and the inflation-productivity relationship: evidence from eight low inflation OECD countries, International Review of Economics and Finance, 7(1), 117–135. http://

Hsu, P. F. (2005) Inter-industry wage premiums and industry-specific productivity in Taiwan, Applied Economics, 37(13), 1523–33. doi: https:// 10.1080/ 00036840500118861.

Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2-3), 231–254. doi:10.1016/0165-1889(88)90041-3.

Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models, Econometrica, 59(6), 1551 -1580.doi: 10.2307/2938278.

Klein, N. (2012). Real wage, labor productivity, and employment trends in South Africa: A closer look, IMF Working Paper, WP/12/92.

Kumar, S. (2009) Structural breaks and exports in Philippines, Global Economy Journal, 9(2), 1-9. ... .1504.xml?format =INT (text/html).

Kumar, S., Webber, D. J., and Perry, G. (2012). Real wages, inflation and labor productivity in Australia. Applied Economics, 44(23), 2945–2954. 10.1080/00036846.2011.568405.

Krugman, P.R.(1994). The age of diminished expectations (Cambridge: MIT Press, 1994).

MacKinnon, J.G. (1996). Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics, 11(6), 601-618. doi: 10.1002/(SICI)1099-1255(199611)11:6<601::AID-JAE417>3.0.CO;2-T.

Mahadevan, R. and Asafu-Adjaye, J. (2006) Is there a case for low inflation-induced productivity growth in selected Asian economies?, Contemporary Economic Policy, 24(2), 249–261. doi: 10.1093/cep/byj018.

Mankiw, N. G. (2002). "Macroeconomics" (5th ed.). Worth. measurement of inflation is discussed in chapter 2, 22–32, Money growth and Inflation in chapter 4, 81–107, Keynesian business cycles and inflation in chapter 9, 238–255.

Malik, A., and Ahmed, A. M. (2000). The relationship between real wages and output:Evidence from Pakistan, The Pakistan Development Review, 39(4), 1111-1126.

Mehra, Y. P. (1991). Wage growth and the inflation process: An empirical note, American Economic Review, 81(4), 931-937. =0002-8282%2819910 O%3B2-U&origin=repec full text (application/pdf).

Mehra, Y. P. (2000). Wage-price dynamics: are they consistent with cost-push?, Federal Reserve Bank of Richmond Economic Quarterly, 86(3), 27–43.

Mora, T., Lopez-Tamayo, J. and Surinach, J. (2005). Are wages and productivity converging simultaneously in euro-area countries?, Applied Economics, 37(17), 2001–2008. 17655.

Narayan, P. K., and R. Smyth (2009). The effect of inflation and real wages on productivity: New evidence from a panel of G7 countries. Applied Economics 41 (10), 1285–1291. 37810.

Nenovsky, N., Tochkov K, C.Turcu, (2013). Politiques monétaires et integration européenne. Le cas de deux pays des Balkans, Revue d’études comparatives Est-Ouest, 44(2), 141-162.

Newey, W.K. and K.D.West (1994). Automatic lag selection in covariance matrix estimation, Review of Economic Studies, 61(4), 631-653. 10.2307/2297912 (application/pdf).

Pesaran, M. H., Shin, Y., and Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. doi: 10.1002/jae.616.

Phillips, P.C., and Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346. doi: 10.1093/biomet/75.2.335.

Phillips, P. C., and Ouliaris, S. (1990). Asymptotic properties of residual base tests for cointegration, Econometrica, 58(1), 165-193. 2938339.

Sonmez, H, Atesoglu and J. Smithin (2006). Inflation targeting in a simple macroeconomic model, Journal of Post Keynesian Economics, 28(4), 673-688. http://mesharpe. id=ARK3DEPE0EVYDF5W.

Strauss, J., and Wohar, M. (2004). The linkage between prices, wages and labour productivity: A panel study of manufacturing industries. Southern Economic Journal, 70(4), 920–941. doi: 10.2307/4135280.

Tang, C. F. (2014). The effect of real wages and inflation on labour productivity in Malaysia. International Review of Applied Economics, 28(3), 311-322. /10.1080/02692171.2013.872084.

Tang, J. and W. Wang (2004). Sources of aggregate labour productivity growth in Canada and the United States, The Canadian Journal of Economics 37(2), 421-444. doi: 10.1111/j.0008-4085.2004.00009.x.

Toda, H.Y. and Yamamoto (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1-2), 225-250. http://dx.doi. org /10.1016/0304-4076(94)01616-8.

Wakeford, J. (2004). The productivity-wage relationship in South Africa: An empirical investigation. Development Southern Africa, 21(1), 109–132. 5042000181444.

Yildirim, Ζ. (2015). Relationships among labour productivity, real wages and inflation in Turkey. Economic Research-Ekonomska Istraživanja,28(1), 85–103. /10.1080/1331677X.2015.1022401.


Article Metrics

Metrics Loading ...

Metrics powered by PLOS ALM


  • There are currently no refbacks.

Copyright (c) 2016 CHAIDO DRITSAKI


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.


If you find difficulties in submitting manuscript please forward your doc file to Our support team will assist you in submission process and other technical matters. Please note that documents uploaded by yourself are reviewed more quickly than replies by e-mail.

In order to get notifications on inbox please add  this domain in your email safe list.


ISSN 2379-9463(Print)
ISSN 2379-9471(Online)