Forthcoming Journal of Development Studies 2002 HAVE LOWER REAL WAGES HELPED INDUSTRIAL RESTRUCTURING IN ROMANIA?

A reduction in real wages arising from price liberalisation has been a standard feature of economies undergoing industrial restructuring. In this paper, the impact of real wages on industrial performance is examined using a panel dataset of Romanian industries from 1990 to 1996. Using both static and dynamic panel estimation, real wages are found not to be negatively associated with either output or employment. These results are consistent with a view that an institutionalist approach, aimed at improving productivity, may be more likely to achieve the long-term objective of successful industrial restructuring than standard adjustment programmes based on neo-classical theory. Abstract: A reduction in real wages arising from price liberalisation has been a standard feature of economies undergoing industrial restructuring. In this paper, the impact of real wages on industrial performance is examined using a panel dataset of Romanian industries from 1990 to 1996. Using both static and dynamic panel estimation, real wages are found not to be negatively associated with either output or employment. These results are consistent with a view that an institutionalist approach, aimed at improving productivity, may be more likely to achieve the long-term objective of successful industrial restructuring than standard adjustment programmes based on neo-classical theory.