The effect of Wages and Inflation on the Labor Productivity in Selected Developing Countries

in today's competitive world, productivity as a philosophy and a vision based on the strategy of improving operations is the most important goal of leading organizations and is a necessity for economic growth and improving the living and welfare of a country. The amount and rate of productivity growth in each country has a significant impact on the trend of macroeconomic variables at the global level. Many factors affect productivity, among which, the role of wages and inflation can be very important. The aim of this study is to determine the effect of wages and inflation on labor productivity using Markov Switching econometric technique in 15 selected developing countries during the period 2006 to 2017. In this paper, the indicators of foreign direct investment, human capital, business environment, corruption control and trade liberalization were considered as control variables in the model. The results show that inflation in both regimes (boom and bust) has a negative effect on labor productivity and the effect of wages on labor productivity in both regimes (boom and bust) is positive. In relation to control variables, the variables of human capital, trade liberalization and business environment in both regimes (boom and bust) have a positive effect on labor productivity. However, in the case of foreign direct investment and corruption control variables, we see a positive relationship in the first regime (boom) and a negative relationship in the second regime (recession). Also, for more detailed studies, the causal relationship between inflation and wages with labor productivity has been studied by the Granger method, which shows the two-way causal relationship between the variables under study.