Wages in a Factor Proportions Model with Energy Input

This paper examines US wage adjustment in a structural vector autoregression of the factor proportions model of production and trade with energy, capital, and labor inputs. Data cover the years 1949 to 2006. The wage adjusts to changes in inputs levels and output prices over 6 to 8 years. Energy has a more robust wage impact than capital. The wage reacts weakly if at all to the falling price of manufactures and rising price of services over the sample period. Estimates relate directly to factor proportions theory, suggesting robust substitution with labor in the middle of the factor intensity ranking.