REVISITING THE REAL WAGES–UNEMPLOYMENT RELATIONSHIP. NEW RESULTS FROM NON-LINEAR MODELS |
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Authors: | Dimitris K Christopoulos Miguel A León-Ledesma† |
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Institution: | Department of Economic and Regional Development, Panteion University, Greece;, and Department of Economics, University of Kent, UK |
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Abstract: | We examine the long-run real wages–unemployment relationship for five OECD countries over the period 1960:1–2001:4. Given the theoretical possibility of non-linear equilibrium due to downward real wage rigidity we employ econometric tests that allow for the presence of non-linearities in the long-run equilibrium. We adopt the notion of 'hidden co-integration' suggested by Granger and Yoon . This methodology has several advantages with respect to other non-linear models. We find statistical evidence that, in general, there is a long-run positive relation between real wages and unemployment only when both are affected by positive shocks. We also find a negative relationship between unemployment and productivity. The empirical analysis is complemented with the estimation of error correction models for all countries. |
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Keywords: | asymmetric adjustment hidden co-integration non-linear models unemployment |
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