Causality in the Relationship between Economic Growth and Compensation

Abstract

Compensation of labour and economic growth are two economic variables of particular interest to researchers. There have been many theories linking these quantities in causal relationships. Similarly, some studies suggest that changes in wages lead to economic growth, while others contradict this and suggest that economic growth is the cause of changes in wages. It is important to determine which of these quantities is the cause and which is the effect, as this allows for a more effective implementation of fiscal policy. The research presented in this article addresses this issue. They are based on data from OECD countries for the years 2003–2021. Correlation and cointegration analysis were used in the description. Both general dependencies, i.e., based on annual averages obtained for each country, and specific dependencies, i.e., for each country separately, have been examined. The general conclusion is that current compensation acts as a brake on economic growth, while current economic growth stimulates future compensation. Such results can be the basis for designing government programmes aimed at stimulating the economy rather than regulating wages. However, the specifics of some countries differ from the general conclusion. However, these countries are in the minority.