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Adian McFarlane and Anupam Das
''Time series analysis of GDP, employment, and compensation in Canada controlling for nonlinear dynamics''
( 2019, Vol. 39 No.1 )
This paper examines the relations between real GDP, real labour compensation per hour, and market hours worked in Canada over the period 1981Q1 to 2017Q4. We employ causality testing using the vector autoregression lag augmented approach based on possibly integrated or cointegrated processes. This approach avoids the pre-test bias associated with most other causality testing approaches. In addition, we control for the asymmetric impact of real GDP growth on the evolution of these variables. The first finding is that of unidirectional causality from hours worked to real GDP and bidirectional causality between real compensation per hour and market hours worked. Second, we find that the variables have a unique long-run cointegrating relationship. Third, controlling for the non-linear dynamics is important in analysing the causal relations among these variables.
Keywords: Hours worked, compensation, nonlinear dynamics, GDP, Canada
JEL: J3 - Wages, Compensation, and Labor Costs: General
J2 - Demand and Supply of Labor: General
Manuscript Received : Jun 04 2018 Manuscript Accepted : Mar 19 2019

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