Analyzing the Productivity-Wage-Unemployment Nexus in Malaysia: Evidence from the Macroeconomic Perspective

Using multivariate cointegration and error-correction modeling techniques, this paper attempts to examine whether there exists a productivity-wageunemployment relationship in Malaysia at the macroeconomic level. The main findings show that unemployment is dichotomized from the long-run equilibrium relationship between labor productivity and real wages, implying labor productivity is an important long-run factor in determining real wages, while unemployment has negligible effect on the real wage rates. However, the real wages are very responsive to a change in labor productivity, signaling the labor market is tight that leads to an increase in unit labor cost. To be more resilient to rising wages and productivity gap in a globally competitive environment, the Malaysian industries should move up the value chain, and promote skill- and technology-intensive production.