DO RISING REAL WAGES INCREASE THE RATE OF LABOR‐SAVING TECHNICAL CHANGE? SOME ECONOMETRIC EVIDENCE

ABSTRACT The long‐run relationship between real wages and labor productivity is investigated using cointegration and Granger non‐causality tests for the US economy over the period 1869–1999. The series are cointegrated, indicating that there is a link between real wages and labor productivity in the long run. Granger non‐causality tests support unidirectional causation from real wages to labor productivity. This outcome corroborates the conception that increases in real wages drive profit‐seeking capitalists to raise labor productivity as their main weapon in defending their profitability. This result is consistent with a long tradition among economists that perceives technical change as being biased toward labor‐saving.