Abstract—Efficiency theory states that employers who pay more
wages to their employees will motivate the latter to increase
their productivity. In the past decade, evidence has shown that
increase in wages was found to be relatively lower than the
increase in labour productivity. While studies reveal that wages
and labour productivity have significant causal relationship,
they have yet to be observed by their firms’ relative sizes. This
paper examines the effect of wages and global financial crisis on
labour productivity of the manufacturing industries in
Malaysia based on their relative sizes. The study analyses the
industries by their relative sizes, that is, small industries (SIs),
small and medium industries (SMIs) and large industries (LIs).
Using panel data analysis with fixed effects on monthly data
from Jan 2003 until August 2011, the study finds that wages
have positively affected labour productivity of firms at all sizes.
However, the changes in wages affect the labour productivity in
smaller firms more than they do in the large firms. This may be
due to the fact that there are increasingly more SMIs
implementing performance-based remuneration system to
remain competitive. Furthermore, as wage level of labours in
LIs is generally known to be higher than those in SMIs, hence,
the increase in wages of labours in the LIs may seem relatively
lower than those in SMIs. The global financial crisis seems to
have a positive effect on the small and medium industries but
negative effect on the large industries.
Index Terms—Wages, labour productivity, manufacturing,
size.
The authors are with the Faculty of Business Management, Universiti
Teknologi Mara, Sarawak, Malaysia (e-mail: nurhani@uitm.edu.my,
lennora633@uitm.edu.my).
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Cite: Nurhani Aba Ibrahim and Lennora Putit, "Effects of Wages and Global Financial Crisis on Labour Productivity - Does Size Matters?," International Journal of Trade, Economics and Finance vol.12, no.3, pp. 76-79, 2021.
Copyright © 2021 by the authors. This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).