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Forecasting the Level of Unemployment, Inflation and Wages: The Case of Sweden

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  • Tomasz Grodzicki
  • Mateusz Jankiewicz

Abstract

Purpose: In the macroeconomic theory and analyses there are a number of studies focused on three crucial phenomena, namely unemployment, inflation, and wages. As a result, the term called ‘Phillips curve’ was introduced in order to illustrate a negative correlation between inflation and the unemployment rate. This paper is to establish the relationship between unemployment, inflation, and wages in Sweden, and to forecast their value using. Design/Methodology/Approach: The Vector Autoregression (VAR) model has been used for the analysis. The analysis applies the values of the unemployment rate, the level of the minimum wage and the value of inflation in the period of 2002 - 2017 on a quarterly basis. Findings: Results from the analysis show that (1) the unemployment rate and the level of wages do not explain well enough inflation developments in Sweden and (2) as in many previous empirical studies on this topic, there are no significant changes in employment resulting from the increase in the minimum wage. Practical Implications: This study is of great importance especially for the policy makers who can apply the presented analysis tools to predict further tendencies in shaping value of the main economic indicators and make appropriate decisions to avoid possible recession and its negative consequences. Therefore, the outcomes of this paper can increase efficiency of the economic policy in numerous countries. Originality/Value: This research checks the suitability of the widely known tool to evaluate dependencies and predict further situation of the main economic indicators in Sweden. Moreover, the analysis shows that the real relationships between unemployment rate, minimum wages and inflation are not always the same as these, which appear in the literature.

Suggested Citation

  • Tomasz Grodzicki & Mateusz Jankiewicz, 2020. "Forecasting the Level of Unemployment, Inflation and Wages: The Case of Sweden," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 400-409.
    • Handle: RePEc:ers:journl:v:xxiii:y:2020:i:special2:p:400-409
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    References listed on IDEAS

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    1. Blaug,Mark, 1997. "Economic Theory in Retrospect," Cambridge Books, Cambridge University Press, number 9780521577014, November.
    2. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    3. Raff, Daniel M G & Summers, Lawrence H, 1987. "Did Henry Ford Pay Efficiency Wages?," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 57-86, October.
    4. T. H. Gindling, 2018. "Does increasing the minimum wage reduce poverty in developing countries?," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-10, November.
    5. Bradley, Michael E., 2007. "Efficiency Wages and Classical Wage Theory," Journal of the History of Economic Thought, Cambridge University Press, vol. 29(2), pages 167-188, June.
    6. Richard V. Burkhauser & Joseph J. Sabia, 2007. "The Effectiveness Of Minimum‐Wage Increases In Reducing Poverty: Past, Present, And Future," Contemporary Economic Policy, Western Economic Association International, vol. 25(2), pages 262-281, April.
    7. Miroslaw Bochenek, 2016. "Paul Anthony Samuelson and his work (on the hundredth anniversary of his birth)," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 15(3), pages 265-278, September.
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    More about this item

    Keywords

    VAR modelling; unemployment rate; inflation; minimum wage rate.;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics

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