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Is There a Cointegrating Vector for UK Wages?

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Author Info

  • Julia Darby
  • Simon Wren-Lewis

Abstract

An understanding of the determination of real wages is crucial in analysing the determination of the natural rate of unemployment or NAIRU. Uses cointegration techniques to examine a core theoretical model of the long-run determinants of real wages involving unit labour costs, unemployment, union power and the replacement ratio. Considers the different measures of union power and the duration of unemployment and alternative specifications involving the “wedge” but a robust cointegrating relationship is not found. These results can be interpreted in several ways: concepts such as union power or the “generosity” of benefits may be measured inadequately; the theoretical understanding of the long-run determinants of real earnings may remain seriously incomplete; alternatively the short spans of data examined may be insufficient for the application of cointegration techniques, although the sample sizes examined here are fairly typical of most macroeconomic time series.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 20 (1993)
Issue (Month): 1/2 (January)
Pages: 87-115

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Handle: RePEc:eme:jespps:v:20:y:1993:i:1/2:p:87-115

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Related research

Keywords: Cointegration; Economics; Macroeconomics; Modelling; Pay; Trade unions; Unemployment;

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Citations

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Cited by:
  1. Welfe, Aleksander, 2000. "Modeling inflation in Poland," Economic Modelling, Elsevier, vol. 17(3), pages 375-385, August.
  2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  3. Bianchi, Marco & Zoega, Gylfi, 1997. "Challenges facing natural rate theory," European Economic Review, Elsevier, vol. 41(3-5), pages 535-547, April.
  4. Rod Cross & Julia Darby & Jonathan Ireland, 1997. "Uncertainties Surrounding Natural Rate Estimates in the G7," Working Papers 9712, Business School - Economics, University of Glasgow.
  5. Pesaran, M. Hashem & Shin, Y. & Smith, R.J., 1999. "Bounds Testing Approaches to the Analysis of Long-run Relationships," Cambridge Working Papers in Economics 9907, Faculty of Economics, University of Cambridge.
  6. Frédéric Lerais & Hervé Le Bihan & Eric Heyer, 2000. "Relation de Phillips, boucle prix-salaire : une estimation par la méthode de Johansen," Économie et Prévision, Programme National Persée, vol. 146(5), pages 43-60.
  7. Rod Cross & Douglas Strachan, 2001. "Three Pillars of Conventional Wisdom," Review of Political Economy, Taylor and Francis Journals, vol. 13(2), pages 181-200.
  8. Darby, Julia & Hart, Robert A. & Vecchi, Michela, 2001. "Wages, work intensity and unemployment in Japan, UK and USA," Labour Economics, Elsevier, vol. 8(2), pages 243-258, May.
  9. Jesus Felipe & F. Gerard Adams, 2005. ""A Theory of Production" The Estimation of the Cobb-Douglas Function: A Retrospective View," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 427-445, Summer.
  10. S. G. Brian Henry & Stephen G. Hall & James Nixon, 1999. "Inflation Targeting: The Delegation and Co-Ordination of Monetary Policy," Computing in Economics and Finance 1999 842, Society for Computational Economics.
  11. Vasilescu, Denisa Maria & Aparaschivei, Larisa & Roman, Mihai Daniel, 2012. "Employment in Romania: evidence from a panel data analysis," MPRA Paper 38388, University Library of Munich, Germany.
  12. Arestis, Philip & Biefang-Frisancho Mariscal, Iris, 1999. "Unit roots and structural breaks in OECD unemployment," Economics Letters, Elsevier, vol. 65(2), pages 149-156, November.

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