costs of such cleansing activities will be offset by expected returns accruing
to improved growth performance as the new goods and operational methods
provide a competitive edge. For at least two reasons, these investment pe-
riods may mark the start of wage cycles that are linked to the evolution of
new products and processes. Relatively high wages will be associated with the
entry phases of product cycles. First, Frms will wish to match high quality
workers with their newly introduced and relatively high value added activities.
Second, they will endeavor to ensure investment returns by introducing pay-
ment structures designed to encourage work application and effort. Through
time, innovations will be superseded during later investment periods when new
products and processes are established within the same firms and/or compet-
ing firms. Productive and competitive advantages will be eroded and relative
wage growth will decline.
Product and process innovations involve investments in buildings and equip-
ment and a key cyclical indicator for the latter is changes in fixed capital for-
mation. To the extent that producer wages follow cycles of capital formation
then this may tend to detract from the significant influences of conventional
business cycle measures - such as output and employment changes - which are,
on average, of shorter duration.
Another potentially important issue concerning the cyclical behaviors of Cp
and Pp is the length of adjustment lag between actual and desired prices. For
example, delayed price changes on the producers’ side may involve component
parts supplied to assembly plants by subcontractors that are based on fixed
prices over specified contract periods. As for consumers, make-to-order com-
panies will supply products at a future date, but at currently specified prices.
It is difficult, a priori, to form expectations about the relative lag-lengths of
Cp and Pp but it is important that the methodology allows us to test for
systematic response differences between consumption and production wages.
4 Findings
Our empirical research strategy is to build out from the foundation of the
univariate analysis of wave decomposition. As discussed in section 2, univariate
methodology in the frequency domain allows us to establish (a) the number
of different cycles that significantly influence earnings components and (b) the
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