The Employment Elasticity in Manufacturing: A Comment on Mazumdar
Asian Development Bank
Cambridge Journal of Economics, Vol. 29, Issue 4, pp. 659-664, 2005
We show that Mazumdar`s recently proposed methods for estimating the elasticity of the wage bill with respect to output growth, and for decomposing the growth rate of the wage rate into an output effect, an employment effect, and a price effect, are problematic. The decomposition proposed is a tautology because it can be equally derived from an accounting identity. Likewise, we show that the alleged elasticity of the wage bill with respect to output growth has to take on a value of unity by definition.
Keywords: Accounting identity, Labour share
Date posted: February 29, 2008