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Non-linear dynamics of employment, output and real wages in Canada: Recent time series evidence

Adian A. McFarlane (Centre for Flexible Learning and Teaching, Nipissing University, North Bay, Canada)
Anupam Das (Department of Policy Studies, Mount Royal University, Calgary, Canada)
Murshed Chowdhury (Department of Economics, University of Manitoba, Winnipeg, Canada)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 8 July 2014

405

Abstract

Purpose

The purpose of this paper is to examine the relationship among employment, real wage, and output growth in Canada.

Design/methodology/approach

Using quarterly data from 1994q2 to 2012q3, this paper employs a vector autoregressive framework while allowing for the derivation of output from its historical maximum over the sample period to affect future output, employment, and real wage growth dynamics.

Findings

There are three main findings: output growth is significant in predicting employment growth and vice versa; real wage growth neither Granger causes employment growth nor output growth, but employment growth Granger causes real wage growth; and non-linear dynamics, captured by the current depth regression (CDR) effect term, through the sign as well as the magnitude of output changes, are important in characterizing the evolution of the relationship among output, employment, and real wage growth.

Practical implications

The findings of this research have significant implications for policy makers. Output and employment growth are important in forecasting each other in Canada. In contrast to the mainstream theory, real growth is insignificant in explaining the future dynamics of employment in Canada. Policies need to be formulated to encourage the growth of employment to ensure sustain output growth.

Originality/value

This study examines empirically the real output, real wage, and employment link in Canada. This study uses the most recently revised GDP data arising from the 2012 Historical Revision of the Canadian System of National Accounts. The econometric methodology involves the standard vector autoregression (VAR) model to which the authors introduce non-linear dynamics through a term that controls for the deviation of output from its preceding historical maximum: the CDR effect.

Keywords

Citation

A. McFarlane, A., Das, A. and Chowdhury, M. (2014), "Non-linear dynamics of employment, output and real wages in Canada: Recent time series evidence", Journal of Economic Studies, Vol. 41 No. 4, pp. 554-568. https://doi.org/10.1108/JES-02-2013-0022

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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