Power over Profits: The Political Economy of Workers and Wages

Contemporary political economy debates tend to assume that an increase in productivity automatically leads to an equal increase in workers' wages. This assumption shapes the way that many scholars think about economic globalization, as well as domestic policy reforms. This assumption is particularly widespread in the field of international political economy, where it is implicitly incorporated through the use of neoclassical economic models. Rather than explore the distributional struggle between capital and labor, these models use the assumption of full employment to predict that policies that increases worker productivity automatically leads to an equal increase in workers' wages. In contrast, this article argues that the degree to which wages increase along with productivity depends on the domestic institutions that protect workers' rights to act collectively. This article tests the relationship between worker productivity and wages by analyzing data from twenty-eight manufacturing industries, in 117 countries, from 1986 to 2002. The results demonstrate that the degree to which an increase in worker productivity leads to an increase in wages depends on a country's level of protection for labor rights.