Taking the above into account, in this paper, we reverse the causality between wages and productivity
growth and examine the impact of wages on firms' productivity enhancing
innovation investments in an oligopolistic industry. In particular, this paper
studies the short- and the long-run evolution of productivity growth in an
oligopolistic industry in which firms produce a homogeneous good, entry and
exit are free and the time horizon is infinite. In each period, firms enter the
market, they invest in capacity and in labor productivity enhancing innovation, and they compete in quantities in the following period.