Emperical Review on the Relationship between Real Wages, Inflation and Labour Productivity in Nigeria. ARDL bounds testing approach

Abstract

This paper examines the long run and short run relationships between real wage, inflation and labour productivity in Nigeria over the period of 1981-2012, using the autoregressive distributed lag approach (ARDL) bound testing and error correction approach to cointegration analysis. Three equations are derived from production function in form of linear equations. The result show that the variables under consideration are not statistically significant in exerting influence on productivity when treated in isolation. However, the result improved with the inclusion of control variables in the likes of real gdp per capital and government expenditure. Indeed, the results provide evidence of a positive statistical relationship between real wages and productivity growth. A positive and significant long run relationship between real wage and labour productivity coexists with a positive short run relationship thereby highlighting the dual effects of real wage on labour productivity in Nigeria. Inflation rate provides a positive and significant relationship with labour productivity contrary to related studies. The findings of this study have important implication for policy makers in Nigeria and indeed contributes to the idea that the causes of inflation in Nigeria are multi-dimensional and dynamic, requiring full knowledge at any point in time to be able to proffer solutions to the inflationary trends in that leads to high productivity and increased living standard.