ARE REAL WAGES AND UNEMPLOYMENT RELATED

In this paper we propose an alternative method for investigating the s ources behind the behaviour of real wages and unemployment. The model we study is a certain cointegrated VAR, a so-called common trends mode l, which has become increasingly popular in the empirical growth/busin ess cycle literature. This model leads us to emphasize the distinction between long-run and short-run relations. Using quarterly Swedish dat a (1965-90), we find only weak evidence of a short-run relation betwee n real wages and unemployment as reported in traditional single-equati on error correction models. There is even less evidence of a long-run relation.