IMPACT OF INFLATION AND REAL WAGES OVER LABOR PRODUCTIVITY

Abstract

Purpose- Major aim of this study was to evaluate the impact of real wages and inflation on labor productivity in Pakistan. Inflation is an increment in the normal level of costs of merchandise and administrations in an economy over a timeframe, not an adjustment in any particular cost. At the point when the general value level ascents; every unit of money purchases less products and administrations. Productivity is the measure of total production by a firm, industry, or nation. For productivity, gross domestic product is used as its measure. Minimum wages is taken as the measure for wages.

Methodology- The study involved use of secondary data extracted from the handbook of statistics; State Bank of Pakistan and Pakistan Federal Budget for the period from 2005 to 2014 for analysis. To analyze the data, Regression and Correlation tests were applied.

Findings- The analysis and results evidently recommended that in Pakistan, as inflation increases, there is no impact on labor’s production nor their efficiency decreases. On the other hand, when labors are given higher wages their efficiency increases and produce more. It was also concluded that wages increases the motivation to work, hence real wages and labor productivity are positively related.

Practical Implications- Labor productivity is assumed to be a very important part to keep up nation motivated to work and ultimately it will have impact on financial development and additionally to make decisions on controlling inflation or increasing wages.