Cyclical and causal relations between real wages and employment in the EU

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This paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the European Union (EU) economies using both annual and quarterly data since 1960. Further investigation of the cointegrating properties and the existence of causal effects in the real wage - employment relation is undertaken by employing appropriate VAR models. The evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data, thus confirming the Dunlop - Tarshis result for the majority of the EU economies. With a few exceptions no cointegrating relations were detected, while the Granger-causality tests suggest either weak or lack of unidirectional causality. Finally, the sensitivity analysis showed that the filtering method has not much influence on the results, but the choice of deflator may overturn them in certain cases.

Document Type: Research Article


Publication date: March 1, 1997

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