Manufacturing Productivity and Real Consumption Wages

This paper examines the potential for productivity increases in developing countries to raise real consumption wages through the falling price of consumption goods. We begin by outlining the theoretical relationship between productivity and consumption before tracing the historical trends within economies as they developed throughout the twentieth century. We next examine the trends in productivity and prices across four groups of countries and economic sectors from 1970 onwards. The highest productivity growth and lowest price increases occurred in agriculture and manufacturing, with the productivity growth of emerging industrial and other developing economies improving markedly post-1990. The strongest downward effect on prices, however, remained in industrialized economies, raising questions about the role of global value chains in benefitting consumers in those economies. Examining manufacturing in further detail, we developed a conceptual outline of how productivity and price changes in consumption, intermediate and investment goods interact. We found that productivity growth in consumption goods was lower than in other categories, however, productivity increases in intermediate and investment goods within countries reduced their prices, which fed into
productivity increases and lower prices for consumption goods. This benefitted industrialized and emerging industrial economies most, as developing economies did not appear to profit from the investment goods pathway. This raises further questions about the interconnections within manufacturing supply chains in and across countries.