Productivity as a determinant of labour wage in New Zealand’s construction sector
Abstract
The empirical relationships between labour wages, unemployment rate and the labour productivity index in New Zealand’s construction sector (for the period of 1983–2017) were investigated. The Johansen cointegration test and vector error correction mechanism were used to determine the existence of long-run relationships between the variables and the adjustment process of the short-run disequilibrium into the long-run equilibrium. The results show that the labour productivity index positively affects the labour wage, while the effect of unemployment rate is negative in the long run. That is, the more productive the labour, the more the wages earned. Related statistical tests on the residuals proved that the model and its findings are reliable.
First published online 20 June 2019
Keyword : productivity, labour wage, New Zealand, construction, panel data analysis, unemployment
How to Cite
Ozturk, M., Durdyev, S., Aras, O. N., & Banaitis, A. (2019). Productivity as a determinant of labour wage in New Zealand’s construction sector. Technological and Economic Development of Economy, 25(5), 900-914. https://doi.org/10.3846/tede.2019.10297
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Durdyev, S. (2011). Pareto analysis of on-site productivity constraints and improvement techniques in New Zealand building industry (Master thesis). School of Engineering and Advanced Technology, College of Sciences, Massey University at Albany, New Zealand.
Durdyev, S. & Ismail, S. (2012). Pareto analysis of on-site productivity constraints and improvement techniques in construction industry. Scientific Research and Essays, 7(7), 824-833. https://doi.org/10.5897/SRE12.005
Durdyev, S., Ismail, S., & Kandymov, N. (2018). Structural equation model of the factors affecting construction labor productivity. Journal of Construction Engineering and Management, 144(4), 1-11. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001452
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Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251-276. https://doi.org/10.2307/1913236
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Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. https://doi.org/10.2307/1912791
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Gündüz, U., & Kaya, T. (2017). Regional employment generation potential of the Turkish labor market: an inter-sectoral perspective. Technological and Economic Development of Economy, 23(5), 726-741. https://doi.org/10.3846/20294913.2015.1015110
Han, S., Ko, Y.-H., Hong, T., Koo, C., & Lee, S. (2017). Framework for the validation of simulationbased productivity analysis: focused on curtain wall construction process. Journal of Civil Engineering and Management, 23(2), 163-172. https://doi.org/10.3846/13923730.2014.992468
Huang, A. L., Chapman, R. E., & Butry, D. T. (2009). Metrics and tools for measuring construction productivity: Technical and empirical considerations. National Institute of Standards and Technology, Gaithersburg, USA. Retrieved from https://www.nist.gov/publications/metrics-and-tools-measuring-construction-productivity-technical-and-empirical https://doi.org/10.6028/NIST.SP.1101
Iheanacho, E. (2017). Empirical review on the relationship between real wages, inflation and labour productivity in Nigeria: ARDL bounds testing approach. International Economics and Business, 3(1), 9-29.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on co-integration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Johansen, S. (1988). Statistical analysis of co-integrated vectors. Journal of Economic Dynamics and Control, 12(2-3), 131-154. https://doi.org/10.1016/0165-1889(88)90041-3
Karaalp-Orhan, H. S. (2017). Labour productivity, real wages and unemployment: An application of bounds test approach for Turkey. Journal of Economic and Social Development, 4(2), 11-22.
Krugman, P. (1994). The age of diminishing expectations. Retrieved from http://www.oecd.org/sdd/productivity-stats/40526851.pdf
Kumar, S., Webber, D. J., & Perry, G. (2012). Real wages, inflation and labour productivity in Australia. Applied Economics, 44(23), 2945-2954. https://doi.org/10.1080/00036846.2011.568405
Kuznets, S. (1961). Economic growth and the contribution of agriculture: notes on measurement. International Journal of Agrarian Affairs, 3(2). Retrieved from https://econpapers.repec.org/scripts/redir.pf?u=http%3A%2F%2Fpurl.umn.edu%2F229152;h=repec:ags:iaaeaa:229152
Ma, L., Liu, C., & Reed, R. (2017). The impacts of residential construction and property prices on residential construction outputs: an inter-market equilibrium approach. International Journal of Strategic Property Management, 21(3), 296-306. https://doi.org/10.3846/1648715X.2016.1255675
Mankiw, N. G. (2017). Principles of macroeconomics. Cengage Learning. USA.
Nazarko, J., & Chodakowska, E. (2017). Labour efficiency in construction industry in Europe based on frontier methods: data envelopment analysis and stochastic frontier analysis. Journal of Civil Engineering and Management, 23(6), 787-795. https://doi.org/10.3846/13923730.2017.1321577
Ofori, G. (1990). The construction industry: Aspects of its economics and management, Singapore: Singapore University Press.
Oyeranti, O. A. (2000). Concept and measurement of productivity in productivity and capacity building in Nigeria. Paper presented at Proceedings of the Ninth Annual Conference of the Zonal Research Units of the Central Bank of Nigeria, 12 June 2000, Abeokuta, Nigeria.
Phillips, P. C. B., & Perron, P. (1988). Testing for unit roots in time series regression. Biometrika, 75(2), 335-346. https://doi.org/10.2307/2336182
PwC. (2016). Valuing the role of construction in the New Zealand economy. A report to the Construction Strategy Group in association with Construction Industry Council BRANZ. Retrieved from https://www.pwc.co.nz/pdfs/CSG-PwC-Value-of-Construction-Sector-NZ.pdf
Romer, D., & Chow, C. (1996). Advanced macroeconomic theory. Mcgraw-Hill, USA.
Rosenberg, B. (2010). Real wages and productivity in New Zealand. Labour, Employment and Work in New Zealand. https://doi.org/10.26686/lew.v0i0.1714
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94. https://doi.org/10.2307/1884513
Speed, T. P., & Yu, B. (1993). Model selection and prediction: Normal regression. Annals of the Institute of Statistical Mathematics, 45(1), 35-54. https://doi.org/10.1007/BF00773667
Stats NZ. (2017). Construction leads GDP growth. Retrieved from https://www.stats.govt.nz/news/construction-leads-gdp-growth
Tipper, A. (2012). Labour productivity, real wages, and workforce age structure. Paper presented at 53rd New Zealand Association of Economists Conference, Palmerston North. Retrieved from https://www.nzae.org.nz/wp-content/uploads/2012/06/Tipper-productivity-real-wages-and-workforceage-structure-final.pdf
Turin, D. A. (1978). Construction and development. Habitat International, 3(1/2), 33-45. https://doi.org/10.1016/0197-3975(78)90032-2
Vergeer, R., & Kleinknecht, A. (2007). Jobs versus productivity? The causal link from wages to labour productivity growth. TU Delft Innovation Systems Discussion Papers, IS, 1. Retrieved from https://www.fep.up.pt/conferencias/eaepe2007/Papers%20and%20abstracts_CD/Vergeer.pdf
Wakeford, J. (2004). The productivity–wage relationship in South Africa: an empirical investigation. Development Southern Africa, 21(1), 109-132. https://doi.org/10.1080/0376835042000181444
Yildirim, Z. (2015). Relationships among labour productivity, real wages and inflation in Turkey. Economic Research-Ekonomska Istraživanja, 28(1), 85-103. https://doi.org/10.1080/1331677X.2015.1022401
Yusof, S. A. (2008). The long-run and dynamic behaviors of wages, productivity and employment in Malaysia. Journal of Economic Studies, 35(3), 249-262. https://doi.org/10.1108/01443580810887805
Banaitienė, N., Banaitis, A., & Laučys, M. (2015). Foreign direct investment and growth: analysis of the construction sector in the Baltic States. Journal of Civil Engineering and Management, 21(6), 813-826. https://doi.org/10.3846/13923730.2015.1046478
Bernold, L. E., & AbouRizk, S. M. (2010). Managing performance in construction. Hoboken, NJ: John Wiley and Sons Inc. https://doi.org/10.1002/9780470638996
Breusch, T. S. (1978). Testing for autocorrelation in dynamic linear models. Australian Economic Papers, 17(31), 334-355. https://doi.org/10.1111/j.1467-8454.1978.tb00635.x
Chan, S. L. (2001). Empirical tests to discern linkage between construction and other economic sectors in Singapore. Construction Management and Economics, 19(4), 355-363. https://doi.org/10.1080/01446190010022686
Chia, F. C., Skitmore, M., Runeson, G., & Bridge, A. (2014). Economic development and construction productivity in Malaysia. Construction Management and Economics, 32(9), 874-887. https://doi.org/10.1080/01446193.2014.938086
Conway, P., Meehan, L., & Parham, D. (2015). Who benefits from productivity growth? The labour income share in New Zealand (New Zealand Productivity Commission Working Paper 2015/1 February 2015). Retrieved from https://www.productivity.govt.nz/sites/default/files/research-who-benefitsfrom-productivity-growth.pdf
Dickey, D. A., & Fuller ,W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427- 431. https://doi.org/10.2307/2286348
Dickey, D., & Fuller, W. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057-1072. https://doi.org/10.2307/1912517
Durdyev, S., & Ismail, S. (2016). On-site construction productivity in Malaysian infrastructure projects. Structural Survey, 34(4/5), 446-462. https://doi.org/10.1108/SS-12-2015-0058
Durdyev, S. (2011). Pareto analysis of on-site productivity constraints and improvement techniques in New Zealand building industry (Master thesis). School of Engineering and Advanced Technology, College of Sciences, Massey University at Albany, New Zealand.
Durdyev, S. & Ismail, S. (2012). Pareto analysis of on-site productivity constraints and improvement techniques in construction industry. Scientific Research and Essays, 7(7), 824-833. https://doi.org/10.5897/SRE12.005
Durdyev, S., Ismail, S., & Kandymov, N. (2018). Structural equation model of the factors affecting construction labor productivity. Journal of Construction Engineering and Management, 144(4), 1-11. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001452
Durdyev, S., Zavadskas, K. E., Thurnell, D., Banaitis, A., & Ihtiyar, A. (2018). Sustainable construction industry in Cambodia: Awareness, drivers and barriers. Sustainability, 10(2), 392. https://doi.org/10.3390/su10020392
Durdyev, S., & Mbachu, J. (2011). On-site labour productivity of New Zealand construction industry: Key constraints and improvement measures. Construction Economics and Building, 11(3), 18-33. https://doi.org/10.5130/AJCEB.v11i3.2120
Durdyev, S., & Mbachu, J. (2018). Key constraints to labour produc tivity in residential building projects: Evidence from Cambo dia. International Journal of Construction Management, 18(5), 385-393. https://doi.org/10.1080/15623599.2017.1326301
Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251-276. https://doi.org/10.2307/1913236
Gang, Y., Gang, F., & Yan, L. (2003). A theoretical analysis on economic growth in China and total factor productivity. Economic Research Journal, 2003-8.
Giang, D. T., & Low, S. P. (2011). Role of construction in economic development: review of key concepts in the past 40 years. Habitat International, 35(1), 118-125. https://doi.org/10.1016/j.habitatint.2010.06.003
Godfrey, L. G. (1978). Testing for multiplicative heteroscedasticity. Journal of Econometrics, 8(2), 227236. https://doi.org/10.1016/0304-4076(78)90031-3
Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. https://doi.org/10.2307/1912791
Granger, C. W. (1988). Some recent development in a concept of causality. Journal of Econometrics, 39(1-2), 199-211. https://doi.org/10.1016/0304-4076(88)90045-0
Gündüz, U., & Kaya, T. (2017). Regional employment generation potential of the Turkish labor market: an inter-sectoral perspective. Technological and Economic Development of Economy, 23(5), 726-741. https://doi.org/10.3846/20294913.2015.1015110
Han, S., Ko, Y.-H., Hong, T., Koo, C., & Lee, S. (2017). Framework for the validation of simulationbased productivity analysis: focused on curtain wall construction process. Journal of Civil Engineering and Management, 23(2), 163-172. https://doi.org/10.3846/13923730.2014.992468
Huang, A. L., Chapman, R. E., & Butry, D. T. (2009). Metrics and tools for measuring construction productivity: Technical and empirical considerations. National Institute of Standards and Technology, Gaithersburg, USA. Retrieved from https://www.nist.gov/publications/metrics-and-tools-measuring-construction-productivity-technical-and-empirical https://doi.org/10.6028/NIST.SP.1101
Iheanacho, E. (2017). Empirical review on the relationship between real wages, inflation and labour productivity in Nigeria: ARDL bounds testing approach. International Economics and Business, 3(1), 9-29.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on co-integration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Johansen, S. (1988). Statistical analysis of co-integrated vectors. Journal of Economic Dynamics and Control, 12(2-3), 131-154. https://doi.org/10.1016/0165-1889(88)90041-3
Karaalp-Orhan, H. S. (2017). Labour productivity, real wages and unemployment: An application of bounds test approach for Turkey. Journal of Economic and Social Development, 4(2), 11-22.
Krugman, P. (1994). The age of diminishing expectations. Retrieved from http://www.oecd.org/sdd/productivity-stats/40526851.pdf
Kumar, S., Webber, D. J., & Perry, G. (2012). Real wages, inflation and labour productivity in Australia. Applied Economics, 44(23), 2945-2954. https://doi.org/10.1080/00036846.2011.568405
Kuznets, S. (1961). Economic growth and the contribution of agriculture: notes on measurement. International Journal of Agrarian Affairs, 3(2). Retrieved from https://econpapers.repec.org/scripts/redir.pf?u=http%3A%2F%2Fpurl.umn.edu%2F229152;h=repec:ags:iaaeaa:229152
Ma, L., Liu, C., & Reed, R. (2017). The impacts of residential construction and property prices on residential construction outputs: an inter-market equilibrium approach. International Journal of Strategic Property Management, 21(3), 296-306. https://doi.org/10.3846/1648715X.2016.1255675
Mankiw, N. G. (2017). Principles of macroeconomics. Cengage Learning. USA.
Nazarko, J., & Chodakowska, E. (2017). Labour efficiency in construction industry in Europe based on frontier methods: data envelopment analysis and stochastic frontier analysis. Journal of Civil Engineering and Management, 23(6), 787-795. https://doi.org/10.3846/13923730.2017.1321577
Ofori, G. (1990). The construction industry: Aspects of its economics and management, Singapore: Singapore University Press.
Oyeranti, O. A. (2000). Concept and measurement of productivity in productivity and capacity building in Nigeria. Paper presented at Proceedings of the Ninth Annual Conference of the Zonal Research Units of the Central Bank of Nigeria, 12 June 2000, Abeokuta, Nigeria.
Phillips, P. C. B., & Perron, P. (1988). Testing for unit roots in time series regression. Biometrika, 75(2), 335-346. https://doi.org/10.2307/2336182
PwC. (2016). Valuing the role of construction in the New Zealand economy. A report to the Construction Strategy Group in association with Construction Industry Council BRANZ. Retrieved from https://www.pwc.co.nz/pdfs/CSG-PwC-Value-of-Construction-Sector-NZ.pdf
Romer, D., & Chow, C. (1996). Advanced macroeconomic theory. Mcgraw-Hill, USA.
Rosenberg, B. (2010). Real wages and productivity in New Zealand. Labour, Employment and Work in New Zealand. https://doi.org/10.26686/lew.v0i0.1714
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94. https://doi.org/10.2307/1884513
Speed, T. P., & Yu, B. (1993). Model selection and prediction: Normal regression. Annals of the Institute of Statistical Mathematics, 45(1), 35-54. https://doi.org/10.1007/BF00773667
Stats NZ. (2017). Construction leads GDP growth. Retrieved from https://www.stats.govt.nz/news/construction-leads-gdp-growth
Tipper, A. (2012). Labour productivity, real wages, and workforce age structure. Paper presented at 53rd New Zealand Association of Economists Conference, Palmerston North. Retrieved from https://www.nzae.org.nz/wp-content/uploads/2012/06/Tipper-productivity-real-wages-and-workforceage-structure-final.pdf
Turin, D. A. (1978). Construction and development. Habitat International, 3(1/2), 33-45. https://doi.org/10.1016/0197-3975(78)90032-2
Vergeer, R., & Kleinknecht, A. (2007). Jobs versus productivity? The causal link from wages to labour productivity growth. TU Delft Innovation Systems Discussion Papers, IS, 1. Retrieved from https://www.fep.up.pt/conferencias/eaepe2007/Papers%20and%20abstracts_CD/Vergeer.pdf
Wakeford, J. (2004). The productivity–wage relationship in South Africa: an empirical investigation. Development Southern Africa, 21(1), 109-132. https://doi.org/10.1080/0376835042000181444
Yildirim, Z. (2015). Relationships among labour productivity, real wages and inflation in Turkey. Economic Research-Ekonomska Istraživanja, 28(1), 85-103. https://doi.org/10.1080/1331677X.2015.1022401
Yusof, S. A. (2008). The long-run and dynamic behaviors of wages, productivity and employment in Malaysia. Journal of Economic Studies, 35(3), 249-262. https://doi.org/10.1108/01443580810887805