The Dynamic Implications For Wage Changes On Productivity, Prices, And Employment In A Developing Economy: A Structural Var Analysis

This study employs a Structural Vector Autoregression (SVAR) model to analyze the dynamic effects of wage changes on Ghana's economy. In particular, the paper sheds light on how changes in wages affect the short-run and long-run dynamics of labor productivity, employment and prices in the agricultural and the manufacturing sectors. The empirical results indicate that shocks to wages have no significant impact on employment in the two sectors. While a wage increase does not encourage workers in the agricultural sector to work more, such increase does induce manufacturing workers to increase their productivity in the short run. The empirical results also indicate that, persistent increases in wages may be price inflationary within industries and in the economy as a whole. Therefore a wage policy that moderately increases wages, especially in the manufacturing sector, may provide a partial solution to reduce poverty and increase the standard of living of workers in Ghana.