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A note on the non-linear wages-productivity nexus for Malaysia

Tang, Chor Foon (2010): A note on the non-linear wages-productivity nexus for Malaysia.

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Abstract

This study is to empirically investigate the effect of real wages on labour productivity in Malaysia’s manufacturing sector using annual data from 1980 to 2009. The Johansen’s test suggests that real wages and labour productivity are cointegrated. Moreover, productivity and real wages have a quadratic relationship (i.e. inverted-U shaped curve) instead of linear relationship. Hence, the effect of real wages on labour productivity is not monotonic. Furthermore, the Granger causality test indicates that real wages and labour productivity is bilateral causality in nature.

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