Prices and Wages in the OECD Area 1913-1980

Hyllebe g, S end; Paldam, Ma in A icle P ices and Wages in he OECD A ea 1913-1980 Zei sch i ü Wi scha s- und Sozialwissenscha en (ZWS) - Vie eljah essch i de Gesellscha ü Wi scha s- und Sozialwissenscha en, Ve ein ü Socialpoli ik P o ided in Coope a ion wi h: Duncke & Humblo , Be lin Sugges ed Ci a ion: Hyllebe g, S end; Paldam, Ma in (1985) : P ices and Wages in he OECD A ea 1913-1980, Zei sch i ü Wi scha s- und Sozialwissenscha en (ZWS) - Vie eljah essch i de Gesellscha ü Wi scha s- und Sozialwissenscha en, Ve ein ü Socialpoli ik, ISSN 0342-1783, Duncke & Humblo , Be lin, Vol. 105, Iss. 2-3, pp. 193-221, h ps://doi.o g/10.3790/schm.105.2-3.193 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/291604 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. 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I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ P ices and Wages in he OECD A ea 1913 - 1980 A S udy o he Time Se ies E idence* By S end Hyllebe g and Ma in Paldam wi h he assis ance o Michael Poulsen The domina ing ime se ies pa e ns o he yea ly a es o p ice and wage in la ion in 17 de eloped wes e n economics om 1913 o 1980 a e in es i- ga ed. On he basis o an economic model he co esponding uni a ia e ime se ies (Final Equa ions) a e analyzed oge he wi h he socalled Au o eg es- si e Final Fo m. In addi ion he lead-lag ela ions be ween wage and p ice in la ion a e examined by use o es s o G ange non-causali y. I. In oduc ion This pape epo s on an a emp o ind he domina ing ime se ies pa e ns o p ice and wage in la ion in 17 de eloped wes e n economies du ing he las 68 yea s, and o in e p e hese pa e ns in economic e ms. The se ies used a e: p, pe cen ises in consume p ices.1 w, pe cen ises in nominal wage a es o wo ke s in manu ac u ing.2 Wage in la ion pw is ela ed o p ice in la ion p and o wage ises w h ough he ollowing wo iden i ies — aken o be linea (la) pw = w — g, whe e g is p oduc i i y g ow h (lb) p = pw — lw, whe e lw is wage sha e changes. * The au ho s g a e ully acknowledge assis ance om To ben M. Ande - sen, Hans Jo gen Biede, Claus Nielsen, Ki s en S en o , and Ki s en 0s e - gaa d. The pape has been p esen ed a ESEM 84 in Mad id and a he Uni e si ies in Regensbu g, Munich, and U bana-Campaign and discussed wi h se e al colleagues. The pape belongs o a se analysing p ice-wage dynamics in a compa a i e se ing, and we shall ely on he indings in o he pa s o he p ojec . 1 Fo he pe iod 1948/50 - 80 we use he implici consume p ice index in he OECD Tables o Na ional Accoun s and be o e ha such consume p ice indices as a e a ailable. 2 The wage se ies a e aken om he ILO-yea books, linked up wi h na ional sou ces. No e ha he se ies a e o manu ac u ing only, so ha , s ic ly speaking, he lw in ela ion (2) should be o wo ke s in manu ac u - ing only. OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 194 S end Hyllebe g and Ma in Paldam Table 1 The p and w se ies co e ed 1913 - 1980 Missing Main de ia ions om a e age pa e n obse a ions as shown on Figu e 1 1 Aus alia^) noneb) VR, low 50 - 70, peaks in 51 and 73 2 Belgium b 20,30/47 High in la e 20s, s ange peak in mid 60s 3 Canada none VJR, low 50 - 73 4 Denma k none High ea ly 20s, peak 40, high mid 50s o 72 5 Ei e b 22 Low ill 60, 2-yea cycles in 60s, high since 70 6 Finland b 15 Wild 15 - 21 and 40 - 52, R since 52 7 F ance none High 15-30 and 35 - 52, R since 52 8 Ge many») b 15,43/47c) Wild 15 - 25, 31/32, low since 70 9 Holland*) . . . none VR, some la ge luc ua ions in 50s 10 I aly b 14 R, bu wi h peaks 16/21, 29, 43/4, 74/77 11 Japan nonec) R, bu peaks 18/19 and 44/50 12 New Zealand .. none VR, bu low h oughou 13 No way none VR, bu high 17/20, low 22, 25/26 14 Os e eicha) ... b 19,34/47 R since 50 15 Sweden none VR, high 17/20 and low 22 16 UK none R, high 15,18, 40, 75 and low 21/22 17 USA none R, bu jumpy ill 50 and low since Al oge he 2 = 1101 "VR" means ha Fig. 1 is " e y ep esen a i e" Missing is 4 8°/ob) "R" means ha Fig. 1 is " ep esen a i e" Sou ces el. Paldam and Madsen (1978) and Pede sen (1981). "bn" means ha da a begins in n. a) Ge many is GFR only om 46, The Ne he lands a e e med Holland and Aus ia appea s as coun y 14, no o be mixed up wi h 1. b) F om 1913 o 80 a e 68 yea s, hence he maximum a ailable would ha e been 17 • 68 — 1156 obse a ions. c) In pos -wa uns we s a in 1950 o Ge many and Japan, u he i is no ed ha he Japanese p se ies s a s in 23. In Sec ion II we shall ake a look a he da a, as p esen ed in Table 1 and Figu e 1. I is a gued ha g is ai ly cons an implying ha we may s udy wage in la ion in he di ec ly a ailable w se ies as well as in he pw se ies. I , u he mo e, lw could be aken as cons an , p and w a e he same excep o a cons an . In his si ua ion he ha e one a e o in la ion on he wo ma ke s as is o en p esumed. Howe e , since lie is no cons an he one- a e-p esump ion is a dubious one. OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 13 Zei sch i ü Wi scha s- und Sozialwissenscha en 1985/2/3 OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 196 S end Hyllebe g and Ma in Paldam The e o e he e a e good easons o analyse he dynamics o he p se ies and he w se ies in isola ion. This is done in Sec ion IV. The nex s ep is hen o analyse he pa e n o in e dependence be ween he wo se ies, see Sec ion V. Finally Sec ion VI gi es a b ie summa y o he main economic im- plica ions o ou indings. A as li e a u e discusses he economics o p ice and wage in la ion and his li e a u e con ains many con o e sies. Some o hese conce n he ela ionship be ween ou wo a iables and o he a iables, such as he money s ock, no co e ed by he p esen pape . Bu we hope o h ow ligh o e some o he emaining deba es. Sec ion III gi es a b ie su ey o he mo e ele an heo e ical discussion poin ing ou wha o look o in he ollowing sec ions. II. A Look a he Time Se ies The pa hs o ou p and w se ies in he a e age OECD coun y a e displayed in Figu e 1. The wo cu es a e unweigh ed a e ages. In Table 1 he co e age o he se ies analysed is lis ed and he main de ia- ions om he pa e n o Figu e 1 a e men ioned. I appea s ha Figu e 1 is e y ep esen a i e o he p ice-wage in la ion in each o he coun ies. In o he wo ds: bo h p ice and wage ises con ain la ge in e na ional elemen s; bu hey will no be ou conce n a he mo- men .3 Fo ou pu pose he ollowing ou obse a ions a e he essen ial ones: ( s 1) P ice ises p and wage ises w ha e a ai ly pa allel de elop- men o e ime. ( s 2) The wo in la ion a es display la ge luc ua ions in he pe iod conside ed. ( s 3) A lo o he ac ion in he se ies appea s in connec ion wi h spe- ci ic -poli ical e en s. ( s 4) The e a e no clea long un ends o e he ull 68-yea span co e ed — bu i is easy o ind sub-pe iods (co e ing one o mo e decades) wi h s ong ends. In iew o he impo ance o hese poin s hey a e wo h elabo a ing a li le. To discuss ( s 1) we ha e o e u n o he wo iden i ies om he in oduc ion: 3 See he e Paldam (1983 c) and Paldam (1980) o a discussion. OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 P ices and Wages in he OECD A ea 1913 - 1980 197 (la) w = w -g and (lb) pw = p + lw Two o he o he pape s in ou p ojec analyse gw and lw on he da a o he same coun ies and yea s: In Paldam (1984 a) we analyse he ime se ies o he a e o unem- ploymen u and he eal g ow h a e y. The ele an inding he e is ha , excep o a couple o shi s, y comes ema kably close o being whi e noise a ound coun y speci ic long- un g ow h a es. Howe e , hese long- un g ow h a es a e a he cons an and hey de ia e om g o wo easons: (dj di e en g ow h a es o he labou o ce, {d2) he amoun by which echnical p og ess di e s om Ha od neu ali y. The sum di + is likely o a y li le ela i e o he size o he long- un g ow h a e and hence we conclude ha g may be aken o be a he cons an . F om his ollows ha we may ake i o g an ed ha pw and w a e essen ially he same se ies — so ha we can analyse he dynamics o in la ion on he labou ma ke by analysing he w se ies. While, he e o e, (la) is unp oblema ic, (lb) is no . In Paldam (1979) i is demons a ed ha wage sha es a e a om cons an . The a e age alue o | lw | on annual da a comes o no less han 1.25 °/o (pe cen age poin s o ne na ional income). Abou hal o ha is o a long un cha - ac e — be ween 1949 and 1975 wages sha es ose by abou 20 %> (o ne na ional income), bu he es is o a sho un cha ac e . As he long- un a e ages o ww and p a e a ound 4 -5 we know ha i is p ob- lema ic o build on he one- a e p esump ion o in la ion: ( s 5) P ice and wage in la ion de ia e by an a e age amoun o 25 o 30°/o, whe e hal is a long- un de ia ion. When, ne e heless, ( s 1) holds his means ha he eed back mechanisms be ween p and w ex end o e mo e han one yea . Also i s ongly sugges s ha he e a e eed back e ec s be ween he in la ion a es a he wo ma ke s. One main pu pose o w i ing his pape is o analyse hese mecha- nisms — hey will be he heme o Sec ion IV below. F om Figu e 1 i is possible o a gue ha he e is a weak upwa d end in he long un in la ion a es, bu his endency is dubious and ce ainly i is dwa ed by la ge luc ua ions, so we shall s ick o he o mula ion ( s4). In he ime se ies adi ion he combina ion o endlessness and la ge luc ua ions call o an analysis o he cyclical s uc u e o he se ies. This, howe e , appea s less in e es ing o he economis when 13* OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 198 S end Hyllebe g and Ma in Paldam e e ence is made o he exogenous cha ac e o he "poli ical" e en s gene a ing a g ea deal o he luc ua ions.4 Lo s o en e aining s o ies ha e been old abou he wild p ice-wage luc ua ions ollowing Wo ld Wa I, and he al oge he di e en adjus - men s a e Wo ld Wa II, whe e wild p ice-wage mo emen s only occu ed in a ew coun ies — especially Japan, Ge many, I aly and F ance. Then he e is he seemingly o ally unp edic ed Ko ean Wa p ice explosion 1950/51 and he causally a he di e en p ice explo- sion a e he Yom Kippu Wa o 1973 in ol ing he OPEC ca el and la e he second oil p ice hike a e he I anian e olu ion. In addi ion o hese "wo ld e en s" he e a e a numbe o coun y speci ic his o ical e en s whe e some c ises occu ed ha had o be accomoda ed by a ound (o some ounds) o in la ion. The mos ex eme case being he Ge man in la ion o 1923/24, bu mos coun ies ha e expe ienced mild cases — he ypical ones being like he F ench ones o 1936 a e he ic o y o he F on Populai e. 1957/58 du ing he Alge ian c isis whe e De Gaulle ook o e , and he "e en s" o May 1968. Many o hose e en s ha e included la ge scale labou un es , as is e iden om Paldam and Pede sen (1984), and poli ical changes, so he e a e many s o ies ha beg o be old, bu we shall, o he p esen , esis he emp a ion. The la ge luc ua ions gene a ed by poli ical and o he exogenous e en s — each ha ing i s own complex explana ion — sugges a highly i egula cyclical s uc u e o he se ies. This, indeed, is wha we ind, as we shall e u n o in Sec ion IV. When he cyclical s uc u e becomes less in e es ing o s udy, he c ucial poin s ins ead become: Fi s ly, he dynamic s uc u e o he p ocesses aking he se ies in o such big swings once hey a e hi by an exogenous e en . Secondly, he cen i ugal o ces le ing p ice wage mo emen s e u n o he mode a e long un pa h. He e i is wo h emembe ing ha i is no law o na u e ha in la ion has o come down once i goes up — in se e al La in Ame ican coun ies in la ion a es ha e con inued o se e al decades a ound 50 °/o pe yea . Also i is wo h no ing how la ge he la es big in la ion wa e has been. Ou main objec o s udy will be he i s o hese poin s — he s uc- u e o au oco ela ion in he se ies and c oss co ela ion be ween he se ies. We ha e a gued ha he e a e no long un ends in he se ies, 4 Digging one s ep deepe one may a gue ha he e a e economic ac o s in ol ed causally in many o he poli ical e en s men ioned below. How- e e , hey a e di e en economic e en s — o en o a long un na u e — and hey a e p obably in mos cases only mino ac o s, so o any ealis ic analy ical pu pose i is be e o cu he causal s uc u e he e. OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 P ices and Wages in he OECD A ea 1913 - 1980 199 bu ob iously lo s o dynamics. To keep hings simple we will wo k wi h subpe iods wi hou ends oo. We ha e chosen o conside he ollowing h ee pe iods: (P 1) The ull pe iod 1913/18 - 80. He e consis en se ies exis o 14 coun ies. The main p oblem is ha he 1918 - 21 luc ua ions a e so wild and unique. Whe he o no hey a e included makes an impac on some o he esul s. (P 2) An ea ly pe iod 1923/24 - 54. He e he se ies exis o ( he same) 14 coun ies. The main p oblem is he pos Wo ld Wa II in la- ions in a ew coun ies. (P 3) A la e pe iod 1948/50 - 80, excluding he pos wa in la ions. He e consis en se ies a e a ailable o all 17 coun ies. The eade should no e ha (P 1) and (P 2) ha e some a ia ion in he s a ing yea — he one used o each coun y is ound in Table 1. Finally, he second poin — e.g. he o ces e u ning he in la ion a es o hei long un a e ages: He e he e is li le doub ha he main o ces a e associa ed o economic policy making. Go e nmen s and ( hei ) cen al banks clea ly wan in la ion o be s ic ly limi ed and so do he popula ions.5 The e u ning pa e n, hence con ains endogenous policy eac ions likely o appea as au oco ela ions in he esiduals. The e o e, we ha e wo kinds o "policy" elemen s — he exogenous ones p e iously discussed and he endogenous ones ha come o in lu- ence he ime se ies p ocesses es ima ed. III. The Theo ies — wha Pa e ns o Expec The e is a huge li e a u e dealing wi h he mac o dynamics o p ice and wage ises, see e.g. San ome o and Sea e (1978) and Chan-Lee (1980) o su eys. Howe e , he e y ac ha new wo k keeps pou - ing ou poin s o he lack o basic ag eemen in he ield. We shall no a emp o p o ide ano he su ey o he li e a u e, bu only d aw a ew main lines. A main no ion is he one dis inguishing be ween he ollowing h ee ypes o e ms in p ice-wage models: Pull- e ms, II. They a e no mally aken o be unc ions o unemploy- men {u) and ela ed e ms (...). A he goods ma ke he basic o mu- la ion is he "nai e" Keynesian wo gap model, and he analogous o - mula ion a he labou ma ke is he "simple" Phillips cu e. s The is a la ge li e a u e on he ela ion be ween he changes in eco- nomic condi ions and changes in he popula i y o go e nmen . The mos ele an a icle pe haps is Hibbs (1979) and he summa y in Paldam (1983 b). OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 200 S end Hyllebe g and Ma in Paldam Push- e ms, xp. He e wo schools exis . In one school he main eason, why people push, is ha hey expec in la ion — i.e. we he e use ex- pec ed in la ion pe as he a gumen . The o he school ies o iden i y ac ual push a iables. I has come up wi h a la ge bag o mixed ad hoc a iables o which some a e uly exogenous, while mos may be caus- ally ela ed o he pe a iable. On he goods ma ke we may use impo p ices (PM), he deg ee o monopoly, e c. On he labou ma ke we may use some exp ession o he powe o ade unions, o he labou ma - ke clima e (such as he numbe o indus ial con lic , cn) o o policy in luences on he push. The la e being e.g. ax a es, , he deg ee o compensa ion in unemploymen elie paymen s, a ious incomes policy p oxies e c. C oss- e ms, R. When keeping ack o bo h he goods and he labou ma ke , we need o model how he a e o in la ion a he wo ma ke s in luence each o he .6 Hence, by p esuming he e ms o be addi i e, we ha e as ou basic ' ame* he ollowing model: (2a) P = (u, ...) + yjp (pe, pM, ...) + Rp (w, w_l9 ...,) + bx (2b) w = I1w(m, ...) + xpw (PE cn, , ...) + Rw (p, P_i, . • 0 + e2 (2c) w = p + g + lw The model in (2) is ob iously a nas y one o wo k wi h: I is simul- aneous, almos symme ical, so ha ce ain e ec s a e likely o be e y ha d o asc ibe o he igh equa ion, and inally i con ains a ia- bles (such as p, w and pe) ha a e likely o be e y collinea . In sho , (2) is an inope a i e model o applied wo k. Howe e , (2) does con ain a numbe o o en discussed issues. As (2) is simul aneous one immedia ely asks o he educed o m. By line- a iza ion o he c oss e ms: (3) 3 Rjd p = <x and 3 Rp/3 w = 0 one ob ains he ollowing educed o m: (4a) p = 0 unp + pnw) + + aoi +*i' (4b) w = y0 [(IIW + <xllp) + {y>w + oapp)] + , whe e yo = 1/(1 — <x ). 6 Many e minologies a e in use in hese ma e s, and he eade should no e ou s, especially since we dis inguish be ween push- e ms and c oss- e ms ha a e me ged by mos w i e s. No e ha wage indexa ion is con- ained in he i?^- e m. OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 P ices and Wages in he OECD A ea 1913 - 1980 207 The e is, howe e , ano he mixed possibili y ha on he ace o i appea s a he easonable. We shall e m i he mild RE case.9 In his case he in o ma ion I en e ing in o eq. (6) depends on he e o s made in da a collec ion and analysis — o in o he wo ds on he a en ion gi en o expec a ion o ma ion. Tha a en ion is likely o change o e ime. Pe haps, unde "no mal" condi ions people do no ca e much, and we obse e ha he smiple LIRE-pa e n modelled in (13) comes o dom- ina e, bu hen om ime o ime e en s (o ansi o y cha ac e pe - haps) occu making people ca e abou in la ion so ha he HIRE-pa - e n eme ges. This we should obse e in he o m o a disin eg a ion o he nice and simple pa e n (8). In such a mild RE wo ld i is impo an o no e how o en b eakdowns o such pa e ns occu , and also i is c ucial o lea n o iden i y he ypes o e en s making he HIRE in- s abili y u n up. Abo e i was sugges ed ha he dynamics may in ol e mo e a iables han pe — in Paldam (1983 a) i is demons a ed ha he numbe o in- dus ial con lic s has links o wage in la ion bo h ways and wi h lags, and mo e a iables may e y well en e in o he complex dynamics o in la ion. The e o e he e a e no need o iden i y he dynamics o he wo in la ion a iables wi h in la iona y expec a ions as we ha e done in he de i a ion abo e.10 In ac Paldam (1984 b) is an a emp o p e- sen a dynamic heo y o p ice-wage in la ion wi hou expec a ions, bu whe e he dynamics is ca ied by wage s uc u e shi s in ol ing in- dus ial con lic s. IV. The Uni a ia e Time Se ies S uc u e o P ice and Wage Ba es Changes: The Final Equa ions and he Au o eg essi e Final Fo m In Sec ion III i was a gued ha he Final Equa ions o p and w a e ARMA (R, S) p ocesses wi h iden ical au o eg essi e pa s. Fu he mo e, i he unemploymen se ies a e AR (1) p ocesses, which seems o be he domina ing ea u e o he applied da a se , he o de becomes!? = 2 = S. To in es iga e hese indings, uni a ia e ime se ies models a e o mu- 9 O cou se, he RE-school is mos ly known o explo ing he ex em HIRE-case, whe e he new and s iking esul s ha e eme ged, o en o a coun e -in ui i e o pa adoxial cha ac e , such as he ine iciency esul s o economic policies. Bu , on he o he hand, wha mos p oponen s o RE eally seem o ha e in mind, as hei ealis ic e sion o he RE-idea would seem o be ou mild RE-case. The pe- a iable is a measu able a iable wi h a s anda d polling ech- nique. F om he a emp s made i appea dubious ha his a iable is ac ually able o ca y he whole o he dynamics o in la ion as i does in ou o mula ion ollowing s anda d heo y, see, e. g., She in (1982) o a su ey o he e idence. OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 208 S end Hyllebe g and Ma in Paldam o 2 & co o 5.57 [.04] 8.24 [.17] 3.53 [.00] 5.58 [.04] 12.06 [.48] 3.39 [.00] 9.13 [.24] 12.42 [.51] 3.48 [.00] 17.51 [.82] 3.28 [.00] 6.76 [.09] 13.46 [.59] 5.21 [.03] 6.30 [.07] 5.59 [.04] 4.59 [.02] < o 3.357 2.162 1.929 1.919 3.074 6.535 3.068 1.280 2.199 3.219 3.515 2.530 2.921 1.452 2.860 2.984 1.557 eg < o .286 .233 .281 .221 .170 .231 .200 .292 .190 .205 .354 .199 .249 .144 .357 .315 .248 .246 (.061) ca - .066 - 1.007 - .723 - 1.102 - 1.107 1.176 - .912 .645 - 1.224 - 1.087 .058 - 1.106 - .6132 1.509 - .864 - 1.074 - .849 - .491 (.855) »H < o .592 .234 .356 .182 .143 .429 .381 .299 .193 .208 .386 .223 .263 .315 .213 .226 .195 .285 (.114) <® MO O^ ^ OC-OCOOM © -H CO o o Hi jcoo^cooo^inc- * ih © © o> co N<*<ocoeMcou30)CMcoiA n in in w 1 1 1 1 1 1 1 II 1 1 1 1 1 1 - .302 (.429) CM •9. < > .394 .354 .079 .322 .258 .116 .260 .103 .230 .252 .173 .229 .303 .018 .400 .382 .235 .242 (.114) CM - .346 .463 - .106 .529 .491 - .898 .442 - .146 .491 .553 .185 .555 - .295 - .355 .510 .485 .491 .179 (.446) iH < o .557 .257 .260 .255 .222 .235 .422 .224 .199 .240 .325 .238 .289 .026 .219 .243 .131 in CM in IH CM 1H 1.105 .492 1.192 .544 .551 .819 .534 .058 .509 .643 .140 .602 1.218 .472 .544 .665 .595 .628 (.314) < o 1.507 .277 .659 .364 .400 2.130 1.527 1.126 .824 .270 2.978 1.055 .495 .654 .963 1.148 .288 .980 (.734) < 1.383 .778 - .085 .058 .727 7.412 .239 3.247 .122 - .171 3.861 - .093 .683 3.445 .194 - .553 .090 1.255 (2.084) Coun y 1. Aus alia 2. Belgium 3. Canada 4. Danma k 5. Ei e 6. Finland 7. F ance 8. Ge many 9. Holland 10. I aly 11. Japan 12. New Zealand 13. No way 14. Ös e eich 15. Sweden 16. UK 17. USA A e age (S anda d e o ) u "H S ^ U -M S ^ OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 P ices and Wages in he OECD A ea 1913 - 1980 209 a co u h C9 C/ 2.82 [.00] 12.56 [.52] 7.24 [.11] 8.91 [.22] 15.91 [.75] 9.13 [.24] 3.45 [.00] 12.44 [.51] 7.84 [.15] 12.71 [.53] 2.89 .[00] 7.15 [.11] 6.53 [.08] 7.36 [.12] 6.92 [.09] 8.26 [.17] 8.42 [.18] < > 5.323 3.923 2.507 2.532 3.944 5.859 4.027 2.121 3.970 4.075 4.248 4.172 3.394 2.385 3.493 3.057 1.320 <N © < O .149 .157 .312 .373 .702 .290 .068 .408 .326 .165 .276 .677 .208 .222 .169 .152 .249 .288 (.175) «D - 1.096 - 1.190 - .321 - 1.018 - .692 .651 - 1.179 .654 - .898 - 1.256 - .065 - .843 - 1.053 .373 - .991 - 1.122 - .015 - .592 (.667) iH <D <ö .255 .176 .537 .324 .341 .363 .171 .377 .314 .197 .283 .509 .175 .225 .121 .195 .321 5 S C* H «î> - .445 - .309 - .136 - .564 - .824 - .378 - .309 .644 - .531 - .286 .666 .584 - .355 .456 - .280 - .481 - .191 - .230 (.425) M < o .251 .209 .334 .358 .518 .216 .193 .226 .356 .209 .195 .691 .444 .101 .258 .283 .245 2 eo a» <4« CSI »H M .396 .528 - .221 .490 .529 - .773 .493 .019 .409 .525 .181 .501 .436 - .246 .018 .512 .271 .239 (.370) iH < Ö .292 .197 .531 .299 .426 .301 .250 .307 .308 .181 .195 .586 .310 .100 .239 .228 .265 I n s •H <»9 .552 .528 1.103 .493 .547 .702 .505 .265 .421 .561 .208 .527 .499 .245 .670 .520 .664 .530 (.204) <<T 1.307 .398 1.640 .767 1.172 4.105 1.908 4.283 .643 .445 3.327 1.111 1.390 1.550 1.572 .957 .792 1.610 (1.187) <3. .229 .466 .891 .442 - .177 11.422 .531 5.752 2.432 .500 6.486 .008 1.402 8.435 3.399 .480 .482 2.450 (3.435) Coun y 1. Aus alia 2. Belgium 3. Canada 4. Danma k 5. Ei e 6. Finland 7. F ance 8. Ge many 9. Holland 10. I aly 11. Japan 12. New Zealand 13. No way 14. Ös e eich 15. Sweden 16. UK 17. USA A e age (S anda d e o ) OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 210 S end Hyllebe g and Ma in Paldam C-J © 1.139 (3.821) .146 (.095) .303 (.294) .280 (.090) .246 (.061) .288 (.175) CM - .600 (.297) - .648 (.334) - .973 (.123) - .826 (.188) - .491 (.855) - .592 (.667) ® < o 1.288 (3.646) .161 (.062) .322 (.286) .257 (.063) .285 (.114) .287 (.117) <® - .250 (.378) - .438 (.214) - .493 (.106) - .580 (.112) - .302 (.429) - .230 (.425) •M 1.213 (3.645) .196 (.058) .300 (.290) .252 (.123) .242 (.114) .299 (.143) CM .124 (.383) .083 (.326) .211 (.299) .171 (.298) .179 (.446) .239 (.370) < C> 1.307 (3.663) .196 (.039) .338 (.274) .289 (.087) .255 (.112) .295 (.122) <eT .802 (.421) .884 (.298) .725 (.286) .743 (.242) .628 (.314) .530 (.204) < 2.050 (3.996) .500 (.267) .652 (.480) .608 (.458) .980 (.734) 1.610 (1.187) .883 (1.335) .826 (.818) .312 (.627) .563 (.843) 1.255 (2.084) 2.450 (3.435) Se ies •a • A .3 •a . 5 Pe iod 1913/19 - 1980 1922/23 - 1954 1948/50 - 1980 OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 P ices and Wages in he OECD A ea 1913 - 1980 211 la ed and es ima ed based on he well-known p ocedu e o Box and Jenkins (1970). The ime se ies models a e cons uc ed o all coun ies a ailable in he sample o each o he o e lapping ime pe iods PI: 1913/19 - 1980, P2: 1922/23 - 1954, and P3: 1948/50 - 1980. In o mula ing he ime se ies models, i.e., socalled au o eg essi e mo ing a e age o ARMA models, he usual ools a e applied, i.e. he au oco ela ion unc ion and he pa ial au oco ela ion unc ion. In addi ion he es ima ed spec a a e used in o de o in es iga e he pos- sibili y o applying an unobse ed componen s model o he ime se ies models. The unobse ed componen s model whe e he se ies is assumed o con ain wo o mo e addi i e unobse ed componen s, o en deno ed he end, he cycle, and he i egula componen , each ha ing an ARMA ep esen a ion may be seen as a pa simonious o mula ion o an o dina y ARMA model, see Hyllebe g (1984) o a de ailed discussion. The main esul s ob ained in he o mula ion s age a e (CI) he au oco ela ion unc ions and he pa ial au oco ela ion unc ions a e e y simila o he wo se ies w and p o each coun y. (C2) he gene al pic u e o he au oco ela ion unc ions o he di - e en coun ies is one whe e he au oco ela ions die ou smoo hly. The pa ial au oco ela ion unc ions ha e la ge signi - ican peaks a lag 1 and in some cases lag 2 only, see Figu es 2a o 2c, whe e he a e age esul s a e shown. This implies ha he i s model o es ima e is an AR (1) p ocess, bu a ho ough diagnos ic analysis o he esiduals indica es ha his model doesn' p oduce a sa is ac o y desc ip ion o nei he he wage no he p ice se ies. Highe o de ARMA p ocesses a e hen es ima ed and he gene al esul s show ha he ARMA (2,2) p ocess is second o none al hough i by no means p oduces an excellen desc ip ion o all coun ies. In addi ion he pa ame e s a y ac oss coun ies especially o he p ice se ies while he AR pa s a e no as simila o bo h se ies w and -p o he indi idual coun y as could be expec ed om he heo e ical esul s. Howe e , he a e age AR coe icien a e qui e simila . The esul s o he pe iod 1948 - 1980 a e shown in Tables 2a and 2b, while he a e age esul s a e p esen ed in Table 2c. In Sec ion III i was also a gued ha i he unemploymen a e is conside ed exogenous — a eckless assump ion o cou se — he Au o- eg essi e Final Fo m o he model desc ibed ea lie consis s o wo equa ions whe e p* and w a e explained by he unemploymen a e unlagged and lagged one pe iod and p -1 and w -1 espec i ely, while 14 Zei sch i ü Wi scha s- und Sozialwissenscha en 1985/2/3 OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 212 S end Hyllebe g and Ma in Paldam © 00 Oi »Ö e 'C o a u o m o s S e a I <2> + + H I ¿ + ¿ o + <u O o a u h TH S .15 [.30] 3.85 [.95] 5.08 [.98] 4.58 [.97] 2.46 [.88] 3.53 [.94] .72 [.60] « 2.77 2.58 4.17 4.56 10.09 3.32 2.37 © < o .157 .173 .204 .181 .279 .177 .132 .186 (.047) .401 .401 .050 - .485 .111 - .200 .611 .127 (.381) < o .132 .164 .156 .099 .255 .097 .146 .150 (.053) .625 .515 .653 .920 .418 .882 .444 .637 (.200) »H < o .357 .186 .549 .488 1.967 .346 .161 .579 (.628) »H .881 .198 - .913 - .310 .530 .741 .517 .235 (.640) O «Q. .350 .182 .539 .481 1.810 .348 .160 .553 (.572) © - 1.073 - .393 .946 .465 - 2.004 - .754 - .627 - .491 (.975) N. < o 1.218 1.244 1.608 1.045 4.659 .860 1.145 1.683 (1.332) < 2.633 2.263 1.502 - .393 8.510 .873 2.392 2.325 (2.979) Coun y 1. Aus alia 3. Canada 4. Denma k 5. Ei e 6. Finland 16. UK 17. USA A e age (S anda d e o ) £ u V» o a S » (0 (0 o H u V •i-l S 1 <1) U) i u . S?*? TO 00 a)w Ä W) 0) W ,Q ""S « c OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 P ices and Wages in he OECD A ea 1913 - 1980 213 CO M Ci iH »Ü o •e « A Til « o ci £ a »M ! .s o > UD » o < pd © I + o* + •a + I + O + H »ö o % ¿J J ^ C <D I ° .1 s I P-4 C3 l .2 •N »d § cn •S2 S e o (4 (H a i- S 1.24 [ .73J 1.23 [ .73] 24.50 [1.00] .00 [ .04] 1.27 [ .74] .78 [ .62] 8.35 [ .99] w <o 5.23 2.22 3.51 4.15 11.26 4.71 3.34 © < o .248 .125 .180 .132 .259 .170 .138 .179 (.055) .177 .616 - .400 - .670 - .681 - .644 .589 - .153 (.586) «H « Ö .210 .120 .097 .041 .179 .093 .137 .125 (.057) < Ü .506 .578 .846 .968 .906 .957 .123 .698 (.313) < o .590 .155 .454 .342 1.715 .336 .280 .553 (.534) .961 .595 .063 .248 2.751 .652 1.175 .921 (.893) o c x < o .582 .146 .420 .355 1.481 .339 .225 .507 (.451) o - 1.332 - .737 - .356 - .315 - 2.871 - .634 - 1.255 - 1.071 (.888) < o 2.352 1.342 1.451 1.809 4.005 .985 1.482 1.918 (1.014) < 4.940 3.499 2.463 0.991 1.711 .482 4.809 2.699 (1.778) Coun y 1. Aus alia 3. Canada 4. Denma k 5. Ei e 6. Finland 16. UK 17. USA A e age (S anda d e o ) ûj 3 (4 H 14* OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 214 S end Hyllebe g and Ma in Paldam Table 3 c Es ima es o o , X and i ob ained om Tables 3 a and 3 b Coun y Equa ion a = io - il' io = («! - !)/( 1 - Ì) 1. Aus alia P - 1.073 .821 - 1.095 - 1.332 .721 - .771 3. Canada i - .393 .504 .022 • w - .737 .807 - 1.187 4. Denma k P .946 .965 - 8.914 w « - .356 .177 .813 5. Ei e P .465 .667 .760 - .315 .787 .849 6. Finland P - 2.004 .264 .209 ™ - 2.871 .958 - 1.238 16. UK P - .754 .983 - 5.941 w - .634 1.028 2.536 17. USA P - .627 .825 - 2.177 ™ - 1.225 .936 - 12.703 A e age P ™ - .491 (.975) - 1.071 (.888) .718 (.260) .773 (.284) - 2.248 (3.637) - 1.672 (5.052) he e o p ocesses a e i s o de mo ing a e age p ocesses. The au o- eg essi e pa s o he wo equa ions a e iden ical he e as well, as a e he coe icien s o he unemploymen se ies. The esul s o a condi ional maximum likelihood es ima ion o he pa ame e s applying he Gauss- New on algo i hm, see Hyllebe g (1984), a e shown in Tables 3a and 3b, o only 7 coun ies. Fo he eigh h coun y, Sweden, he maximum likelihood algo i hm doesn' con e ge while he unemploymen se ies OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 P ices and Wages in he OECD A ea 1913 - 1980 215 a e p esen ly una ailable o he emaining coun ies, a leas o he whole pe iod. Again he esul s a e somewha mixed, as he coe icien s o he lag- ged dependen a iables, i.e. p -i and W -i a e e y simila on a e age a leas while he coe icien s o he unemploymen se ies a e no . Fo he p ice equa ion some o he es ima es also exhibi 'w ong' signs al hough no signi ican ly so. F om (11a) and (lib) i is seen ha he es ima es o oc and I may be ound as and — /?i/A) espec i ely and an es ima e o is ound as (A) &i + h)/(A) + Pi) = (c%i - £)/( 1 - A). While he es ima es o he ad- jus men pa ame e 1 look easonable he es ima es o /? a e implausible. Howe e , i is wo h emembe ing ha he a iance on hese es ima es a e e y high due o he o m o he o mula + /?i) / + /?i) = ¡3. In concluding his sec ion i mus be admi ed ha he ' heo ies' pu o wa d in sec ion II a e only pa ly suppo ed by he esul s, and ha mo e analysis is equi ed be o e any conclusion is d awn. V. The In e dependence o P ice and Wage Rises In o de o h ow some u he ligh on he ques ions al eady add es- sed in Sec ion IV a co ela ion analysis o he lead-lag s uc u e o he se ies p and w is unde aken. The co ela ion analysis consis s o he calcula ion o he ollowing 7 co ela ions o ou (14 + 14 + 17 =) 45 coun ies and 3 pe iods: (14) T = (w, pT), G [- 3, - 2, - 1, 0, + 1, + 2, + 3] . I.e. _2 is he co ela ion be ween he i -se ies and he p-se ies lagged 2 yea s e c. I iden ical uni a ia e ime se ies gene a e w and p he co elog am T should be symme ical a ound = 0 and all om he axis as he co esponding au oco ela ion unc ions on igu es 2a - . F om Figu e 3a - c i is ob ious ha he co elog ams a e no symme ical and hey indica e ha w leads ]p in he pe iods 1913 - 1980 and 1922 -1954 bu no in 1948 - 1980. To u he in es iga e his poin o mal es s o G ange non-causali y ha e been ca ied ou . Th ee es s a is ics ha e been compu ed, see Ha ey (1981) in o de o es he hypo hesis ha w non G ange causes p j', i.e. »n.G.c.«. The so-called di ec es , Tes No. 1, is execu ed by a eg ession o p on lagged alues o i sel , i.e. p -u i = 1, 2, ..., mi and on lagged alues o w i.e. w -j j = 1, 2, ..., 7712, es ing he join signi icance o w -j, j = 1,2, ..., m2 by he usual F- es . OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25 216 S end Hyllebe g and Ma in Paldam Figu e 3: Co elog ams be ween he p & w se ies The 1913-80 Co . No e 1: The igu es show he unweigh ed a e ages o he unde lying 14, 14 and 17 such co elog ams calcula ed. The shaded a eas gi e he de ia ions om symme y as ega ds he co -axis. No e he p oblem wi h he las line be o e he axis. The wo do ed lines a e d awn symme ically and pa allel wi h he co esponding hea y lines. c. The 1948-80 pe iod (17 coun ies. -3 -2 -1 +1 +2 +3 No e 2; x = -3, -2, -1, 0, +1, +2, +3 de ines he lead/lag axis whe e p lags w by 3, 2, 1 and 0 yea s and hen leads by 1, 2 and 3 yea s. OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/ DOI h ps://doi.o g/10.3790/schm.105.2-3.193 | Gene a ed on 2023-04-04 12:06:25