October 2002

IZA DP No. 597: Disentangling Pay and Productivity in a Corporatist Economy: The Case of Germany

revised version published in: Journal of Labor Research, 2006, 27(3), 397-409

Conventional theory predicts that productivity gains lead to pay hikes. Pay increases, however, can influence labor productivity. But what about in a corporatist economy? Focusing on Germany, we use an innovative technique developed by Geweke to disentangle the relationship between pay and productivity.