This paper investigates the existence and direction of a relationship between real wages and employment. Using a panel from ten different OECD countries, from 1950 to 2005, it applies panel cointegration and causality methodology. This study finds statistical evidence for a long run relationship between these two variables. However, it firmly rejects the hypothesis that wages cause employment in the short-run. Thus the results support Keynes’s view namely, real wages fall because employment increases, presumably via an increase in demand. The results imply that real wage reduction is not sufficient to induce an expansion of output and employment.
Real wages, employment, panel cointegration, panel causality
How to Cite
Apergis N. & University of Aberdeen & University of Macedonia at Thessaloniki, (2008) “The Employment –Wage Relationship”, American Review of Political Economy 6(1). doi: https://doi.org/10.38024/arpe.100