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Does Micro Evidence Support the Wage Phillips Curve in Canada?

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Jean Farès
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File URL: http://www.bankofcanada.ca/en/res/wp/2002/wp02-4.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 02-4.

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Length: 36 pages Abstract: The existing macroeconometric evidence lends support to the wage Phillips curve by showing a negative relation between the rate of change in wages and the unemployment rate, conditional on lagged price inflation. Most theoretical models of wage setting, however, generate a "wage curve," described by a negative relation between the level of the real wage and unemployment. Real wage dynamics have important implications for how shocks affect aggregate consumer price inflation, and for the determination of the natural rate of unemployment. This paper examines the dynamics of the aggregate wages in Canada, and tests whether real wages and unemployment have a long-term level relationship. The results indicate that a simple aggregate wage Phillips curve continues to describe the behaviour of aggregate wages in Canada quite well. The micro evidence, however, does not unequivocally support one specification against the other; rather, what seems to emerge is more complex wage dynamics better described in an error-correction specification. Wage changes reflect the short-run movement in the unemployment rate, while they adjust towards a long-run equilibrium level, as could be described in a wage curve model.
Date of creation: 2002
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Handle: RePEc:bca:bocawp:02-4

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Related research
Keywords: Inflation and prices;

Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. repec:fth:prinin:343 is not listed on IDEAS
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  7. Blanchard, Olivier & Katz, Lawrence F, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter. [Downloadable!] (restricted)
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  8. Blanchflower, David G & Oswald, Andrew J, 1990. " The Wage Curve," Scandinavian Journal of Economics, Blackwell Publishing, vol. 92(2), pages 215-35.
    Other versions:
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
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  1. Louis Christofides & Amy Chen Peng, 2006. "Major Provisions of Labour Contracts and their Theoretical Coherence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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