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Does increasing firm and sector productivity drive up wages for workers?

This briefing looks at how far attempts to improve productivity might feed through to increases in wages and living standards.

Written by:
Tommaso Ciarli, Edgar Salgado and Maria Savona
Date published:

It finds that:

  • Overall, the research provides little evidence of a strong relationship effect of increasing productivity at either the firm, sector or local labour market area level on nominal wages in the period 2011 to 2015.
  • An increase in firm productivity is associated with an increase in wages, however, the effect is tiny.
  • Surprisingly, an increase in sector productivity seems to cause wages to fall. However, this result is driven solely by the business services sector.
  • A positive relationship is found in both retail and wholesale trade and construction. In both cases this effect is larger than at the firm level, but the effect is still small.
  • In construction, where the largest effect is found, a 10% increase in productivity is estimated to bring about a 1.7% increase in wages.