RDP 8806: Employment, Output and Real Wages 6. Conclusion

This paper has presented estimates of the effect of real wages and output on employment. It finds that both output and real wages have been important influences in employment over the past couple of decades. The estimated elasticities of employment with respect to output and real wages are roughly similar (though of opposite sign) and are well within the range of elasticities estimated in earlier studies.

Simulations with the estimated equation show that the large rise in real wages in 1974/75 and 1982/83 had an important bearing on the fall of employment in those years. Conversely, the prolonged fall in real wages since 1983 appears to have been an important factor in the strong employment growth since that time.