Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 8: Are Real Wages and Unemployment Related?

Tor Jacobson (), Anders Vredin () and Anders Warne
Additional contact information
Anders Vredin: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

Abstract: In this paper we propose an alternative method for investigating the sources behind the behavior of real wages and unemployment. The statistical model we study is a certain structural error correction model, a so called common trends model, which has become popular in the empirical growth/business cycle literature. The system consists of real output, employment, unemployment and the product real wage and two exogenous stochastic variables, a tax wedge and a currency basket index. Based on quarterly Swedish data (1965-90) we find evidence supporting a short run but not a medium or long run relation.

Keywords: Common trends; error correction; supply and demand shocks

JEL-codes: C15; C32; C52; E24

48 pages, January 1994

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