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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. 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.
  2. 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.
  3. M Pesaran & Yongcheol Shin & Richard J Smith, 2004. "Bounds Testing Approaches to the Analysis of Long Run Relationships," ESE Discussion Papers 46, Edinburgh School of Economics, University of Edinburgh.
  4. 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.
  5. 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.
  6. Rod Cross & Julia Darby & Jonathan Ireland, 1997. "Uncertainties Surrounding Natural Rate Estimates in the G7," Working Papers 9712, Business School - Economics, University of Glasgow.
  7. Bianchi, Marco & Zoega, Gylfi, 1997. "Challenges facing natural rate theory," European Economic Review, Elsevier, vol. 41(3-5), pages 535-547, April.
  8. Rod Cross, 2014. "Unemployment: natural rate epicycles or hysteresis?," Working Papers 1402, University of Strathclyde Business School, Department of Economics.
  9. Rod Cross & Douglas Strachan, 2001. "Three Pillars of Conventional Wisdom," Review of Political Economy, Taylor & Francis Journals, vol. 13(2), pages 181-200.

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