The Employment –Wage Relationship: Was Keynes right after all?

Nicholas Apergis, Ioannis Theodossiou

Research output: Contribution to journalArticlepeer-review


This paper investigates the existence and direction of a relationship between real wages and employment. Using a panel from ten different OECD countries, from 1950 to 2005, it applies panel cointegration and causality methodology. This study finds statistical evidence for a long run relationship between these two variables. However, it firmly rejects the hypothesis that wages cause employment in the short-run. Thus the results support Keynes’s view namely, real wages fall because employment increases, presumably via an increase in demand. The results imply that real wage reduction is not sufficient to induce an expansion of output and employment.
Original languageEnglish
Pages (from-to)40-50
Number of pages11
JournalAmerican Review of Political Economy
Issue number1
Publication statusPublished - Jun 2008


  • Real wages
  • employment
  • panel cointegration
  • panel causality


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