Do real wages respond asymmetrically to unemployment shocks? Evidence fromthe US and Canada

Using a set of cointegration and error correction models with asymmetric ad justment, this paper investigates aggregate labor market adjustment in the U.S. and Canada in the, post 1973 period. Empirical results show real wages , productivity, and unemployment are cointegrated. Adjustment toward the lo ng-run equilibrium seems to be linear for the U.S. and non-linear for Canad a. The dynamic adjustment of real wages to unemployment and productivity sh ocks show markedly different responses to positive shocks than negative sho cks in Canada. However, adjustment in the U.S. is mostly symmetric. This di fference between the U.S. and Canadian real wage responses may provide an a nswer to the recent divergence of unemployment rates between the U.S. and C anada.