An Econometric Analysis of the Impact of Real Wages on Economic Growth in OECD Countries using the ARDL-PMG Model (2002-2022)

Kettaf, Hamza

doi:10.2478/ers-2025-0015

Abstract

Subject and purpose of work

This study aimed to analyze the impact of real wages, human capital, and public expenditure as a percentage of Gross Domestic Product (GDP) on economic growth in six Organization for Economic Co-operation and Development (OECD) countries over the period (2002-2022).

Materials and methods

The Panel ARDL model using PMG estimation was employed to test short- and long-term relationships among the variables.

Results

It was found that real wages have a negative and significant impact on long-term economic growth, while human capital has a positive and significant impact. Public expenditure as a percentage of GDP showed a negative but insignificant impact in the long term.

Conclusions

The studies’ results show that real wages have a prominent role in determining the economic growth rate within the OECD countries. Moreover, the research reveals that the governmental expenditure is a very important factor in stimulating the economic growth.

References

Abd Karim, M., Chan, S., Hassan, S. (2016). Minimum wage policy and country’s technical efficiency . International Journal of Economics and Financial, 6(4), 1729-1735.
Search in Google Scholar Back to article
Acemoglu, D., Autor, D. (2011). Skills, tasks and technologies: Implications for employment and earnings . (Vol. 4, pp. 1043-1171). Elsevier.
Search in Google Scholar Back to article
Askenazy, P. (2003). Minimum wage, exports and growth . European Economic Review, 47(1), 147-164. Retrieved from https://doi.org/10.1016/S0014-2921(02)00187-3
Search in Google Scholar Back to article
Bengtsson, E., Stockhammer, E. (2021). income distribution and economic growth: long-run perspectives in Scandinavia, 1900–2010. Review of Political Economy, 33(4), 725-745.
Search in Google Scholar Back to article
Blanchard, O., Katz, L. (1997). What we know and do not know about the natural rate of unemployment. Journal of Economic Perspectives, 51-72. Retrieved from https://doi.org/10.1257/jep.11.1.51
Search in Google Scholar Back to article
Borjas, G. J. (2020). Labor Economics.(8th ed.). McGraw-Hill Education.
Search in Google Scholar Back to article
Chudik, A., Pesaran, M. (2015). Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors . Journal of econometrics, 188(2), 393-420.
Search in Google Scholar Back to article
CORE Economics. (2025, February 5). Measuring the macroeconomy: Nominal wages, prices, and real wages. Retrieved from https://www.core-econ.org/the-economy/macroeconomics/01-supply-side-macroeconomy-04-prices-wages.html
Search in Google Scholar Back to article
Cruz, M. (2019). Labor productivity, real wages, and employment: evidence from a panel of OECD economies over 1960-2019. Colorado State University.
Search in Google Scholar Back to article
Dritsaki, C. (2016). Real wages, inflation, and labor productivity: Evidences from Bulgaria and Romania. Journal of economic & financial studies, 4(5), 24-36.
Search in Google Scholar Back to article
Gujarati, D. N. (2004). Basic econometrics (4th ed.). McGraw-Hill.
Search in Google Scholar Back to article
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. Harcourt, Brace & World.
Search in Google Scholar Back to article
Krugman, P., Obstfeld, M. (2002). International economics: Theory and policy (6th ed.). Addison-Wesley.
Search in Google Scholar Back to article
Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
Search in Google Scholar Back to article
Mankiw, N., Romer, D., Weil, D. (1992). A contribution to the empirics of economic growth . The quarterly journal of economics, 107(2), 407-437. doi:https://doi.org/10.2307/2118477
Search in Google Scholar Back to article
OCED. (2024, December 01). OCED DATA Explorer. Retrieved from https://data-explorer.oecd.org
Search in Google Scholar Back to article
OECD. (2025, February 04). Economic outlook. Retrieved from https://www.oecd.org/en/topics/economic-outlook.html
Search in Google Scholar Back to article
Paul A, S., William D, N. (2010). Economics (19 ed.). McGraw-Hill Education.
Search in Google Scholar Back to article
Pedroni, P. (1999). Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics, 61 (S1), 653-670.
Search in Google Scholar Back to article
Pesaran, M. H., Shin, Y., Smith, R. J. (1999). Pooled Mean Group Estimation of Dynamic Heterogeneous Panels. Journal of the American Statistical Association, 94(446), 621-634.
Search in Google Scholar Back to article
Pfeffer, J. (1998). The Human Equation: Building Profits by Putting People First. Harvard Business School Press.
Search in Google Scholar Back to article
Pfister, U., Riedel, J., Uebele, M. (2012). Real wages and the origins of modern economic growth in Germany, 16th to 19th centuries . EHES working papers in economic history.(17).
Search in Google Scholar Back to article
Piketty, T. (2014). Capital in the twenty-first century (A. Goldhammer, Trans.). Belknap Press.
Search in Google Scholar Back to article
Przekota, G., Janowski, A., Szczepanska-Przekota. (2023). Causality in the Relationship between Economic Growth and Compensation. Sustainability, 15(23), 16465. Retrieved from https://doi.org/10.3390/su152316465
Search in Google Scholar Back to article
Robalo Marques, C. (2008). Wage and price dynamics in Portugal. . EUROPEAN CENTRAL BANK. Retrieved from http://dx.doi.org/10.2139/ssrn.1271888
Search in Google Scholar Back to article
Shkodra, J., Krasniqi, A., Ahmeti, N. (2022). The impact of government expenditure on economic growth in Southeast European countries. Journal of Management Information & Decision Sciences,, 25(4).
Search in Google Scholar Back to article
Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70(1), 65-94.
Search in Google Scholar Back to article
Sonmez, A., Smithin, J. (2006). Real wages, productivity and economic growth in the G7, 1960-2002. Review of Political Economy, 18(2), 223-233. Retrieved from . https://doi.org/10.1080/09538250600571478
Search in Google Scholar Back to article
Wakeford, J. (2004). The productivity-wage relationship in South Africa: an empirical investigation. Development Southern Africa, 21(1), 109-132. Retrieved from https://doi.org/10.1080/0376835042000181444
Search in Google Scholar Back to article
World Bank Group. (2024, December 1). World Bank open data. Retrieved from https://data.worldbank.org
Search in Google Scholar Back to article
Yves, C., Giovanni, M. (2019). Panel Data Econometrics with R. Wiley.
Search in Google Scholar Back to article