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

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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Published as

Tor Jacobson, Anders Vredin and Anders Warne, (1998), 'Are Real Wages and Unemployment Related?', Economica, vol 65, pages 69-96

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