The productivity-wage gap and the recent stock price increase: An analysis

We analyze the effect of the productivity-wage gap on share prices. Batra argues that the productivity-wage gap may be the main factor behind the stock market bubble of the 1990s. We employ both multiple regression analyses and Granger Causality/impulse response function (IRF) analyses to examine the relationship between share prices and the productivity-wage gap, using quarterly data for the U.S. economy for 1970-2000. Our empirical findings are somewhat supportive of this hypothesis. The influence of the productivity-wage gap on stock prices is significant; however, the rise in stock prices may also have an effect on the productivity-wage gap.