An engine of (pay) growth? Productivity and wages in the UK auto industry

Norris Keiller, Agnes, Obermeier, Tim, Teichgraeber, Andreas and Van Reenen, John ORCID: 0000-0001-9153-2907 (2024) An engine of (pay) growth? Productivity and wages in the UK auto industry. CEP Discussion Papers (CEPDP2015). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

When labour market competition is imperfect, positive industry (and firm) productivity shocks can be passed through to workers in the form of higher wages. We document how the UK auto industry, following a period of decline, experienced a four-decade-long productivity boom. There was a thirteen-fold increase in real output per worker between 1980 and 2018, compared to a four-fold increase in manufacturing. Greater foreign ownership, tougher competition and improved industrial relations all likely played a role. The greater use of intermediate inputs (outsourcing) and growing capital intensity account for most of this growth, but we estimate that TFP still grew three times as fast in the auto industry than the rest of manufacturing. Examining whether this productivity increase has been shared with employees, we find that auto workers experienced far stronger hourly wage growth than workers in the rest of manufacturing. After controlling for individual fixed effects, the auto wage premium relative to the rest of manufacturing doubled from 8% in the 1980s to 17% in the 2010s. Interpreted through the lens of a rent sharing model, we estimate that most of the wage increase (63% in the baseline case) can be accounted for by the auto productivity boom. In contrast, the bargaining power of UK auto workers seems to have fallen. If worker power had held up at the 1980s level, the wage premium would have been about 38% higher in the 2010s.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2024 The Author(s)
Divisions:	Management Centre for Economic Performance Economics
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance L - Industrial Organization > L6 - Industry Studies: Manufacturing
Date Deposited:	13 Feb 2025 14:27
Last Modified:	13 Feb 2025 14:27
URI:	http://eprints.lse.ac.uk/id/eprint/126764

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