Browsing by Author "Mthethwa, Mzweleni Fundani"

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    Analysing the impact of wage rate and inflation on labour productivity among selected early inflation-targeting countries and emerging market economies
    (University of Zululand, 2023) Mthethwa, Mzweleni Fundani; Prof Kaseeram, I. and Dr Makhoba, B.P.
    The emerging market economies (EMEs) have experienced more severe trade-offs, higher output and inflation volatility, and poorer performance than developed economies, economic diversity necessitates special efforts. However, the inflation targeting (IT) has been used by central banks as the tool to maintain price stability, but what remains as a major issue is the positive relationship between increased wage rate and labour productivity, which then increases the inflationary pressure in a case of IT EMEs as compared to early IT countries. Theories based on prior experiences around the world have led to generalisations of some monetary policies that ignore differences between countries. In a labour market with perfect competition, wage rates are determined by labour productivity, and wage dispersion represents the marginal contributions of the different workers to the final product. Therefore, this study analysed the impact of labour productivity on wage rate and inflation among selected early IT countries and EMEs over the period 1990-2019. It was a quantitative study, anchored on IT adopters’ countries design because there was strong evidence of a structural break before 1990, which led to a rose rapidly of inflationary pressure and subsequently fed through into per worker wages and productivity negatively. The study employed a panel autoregressive distributed lag approach (PARDL) to analyse the long-run relationships and short-run dynamics between wage rate and labour productivity. Labour productivity was treated as an endogenous variable in the model, while explanatory variables include wage rate, inflation, import and export ratio. The study provided strong evidence of a significant positive impact of wage rate, inflation, import and export ratio on labour productivity for both early IT countries and EMEs. The study found that there was positive and significant long-run relationship between wage rate and labour productivity. Also, there was a positive short-run relationship highlighting the dual effects of wage rate on labour productivity in early IT countries and EMEs, positively significant at 1% and 10%. Moreover, there was positive and significant relationship between inflation rate and labour productivity, which was contrary to related studies for both early IT countries and EMEs. The most plausible explanations for these results are that the adoption of IT had a positive impact on labour productivity shock that led to a significant decline in consumer price inflation and inflation expectations for early inflation targeters. However, that was contrary for IT EMEs as compared with early IT as positive labour productivity shock in IT EMEs led to a significant increase on the inflation pressure. The results of this study have important policy implications for policy makers in EMEs and contribute to the notion that the causes of inflation in EMEs are multi-dimensional and dynamic. Thus, policy makers in EMEs need to be able to offer solutions to the inflationary trends that lead to high productivity, also decreased unemployment, and an improvement in living standards.