Faster real wage growth is associated with faster growth of investment in the United States: Time-series regression results from 1979–2007

Linear combinations (1) (2) (3) (4)
(1) Four real wage growth lags 0.21 0.20 0.31* 0.67**
(.21) (.21) (.21) (.32)
(2) Four investment growth lags 0.74*** 0.72*** 0.72*** 0.66***
(.07) (.07) (.074) (.1)
(3) Four GDP acceleration  lags 0.49* .54** .59** 0.71**
(.27) (.26) (.28) (.29)
(4) Four cost-of-capital lags -.36 -.47* -0.57* -0.83**
(.26) (.27) (.29) (.36)
(4) Implied long-run effect of wage growth (line 1/line 2) 0.81 0.71 1.07 1.97
Year fixed effects no yes yes yes
Finance constraints no no yes yes
Capital-to-employment ratio no no no yes

Note: * = significant at 10 percent level,  ** = significant at 5 percent level, *** = significant at 1 percent level.
Dependent variable is the year-over-year growth rate of non residential fixed investment  (NRFI). Controls include lagged values of NRFI, acceleration in growth of gross domestic product (GDP) and capital–to–labor ratio. Controls also include components of the user cost-of-capital: short-term interest rates, long-term interest rates, and the relative price of capital goods relative to other production in the economy. Controls for the ability of corporations to internally finance investment (the financing gap and the liquid share of short-term assets) are also included. We choose lag lengths to insure no autocorrelation in the residuals.

 

Source: Data are from the Bureau of Economic Analysis (BEA) National Income and Product Accounts (NIPA), the Bureau of Labor Statistics (BLS) nonfarm business productivity series, and the Federal Reserve.

View the underlying data on epi.org.