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Are Real Wages and Unemployment Related?

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  • Tor Jacobson
  • Anders Vredin
  • Anders Warne

Abstract

In this paper we propose an alternative method for investigating the sources behind the behaviour of real wages and unemployment. The model we study is a certain cointegrated VAR, a so‐called common trends model, which has become increasingly popular in the empirical growth/business cycle literature. This model leads us to emphasize the distinction between long‐run and short‐run relations. Using quarterly Swedish data (1965–90), we find only weak evidence of a short‐run relation between real wages and unemployment as reported in traditional single‐equation error correction models. There is even less evidence of a long‐run relation.

Suggested Citation

  • Tor Jacobson & Anders Vredin & Anders Warne, 1998. "Are Real Wages and Unemployment Related?," Economica, London School of Economics and Political Science, vol. 65(257), pages 69-96, February.
    • Handle: RePEc:bla:econom:v:65:y:1998:i:257:p:69-96
    DOI: 10.1111/1468-0335.00114
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