Causal Relationships in Australian Wage Inflation and Minimum Award Rates*

Abstract

When variables are correlated in time-series studies. it is often di#cult to determine which is cause and efect, and in what sense. This paper applies multivariate time-series tests of'causalitj to Austruliarr wage, price, minimum wage award. labour demand and strike (working days lost) variables for 1953-76. The results provide tentative support for a model in nhich strikes are exogenous: the size of Arbitration Commission a w a r h is determined by strikes (suggesting that a trade union capture theory OJ Arbitration Commission regulation may apply): money nages are determined by minimum wage awards; and the demand for labour variable (measured in this paper by the ratio of actual to potential output) is determined (in a negative relaiionship] by monej. wages.

Money Wages, Consumer Prices, and Causality in Australia*

“…First, because a multivariate approach to explaining inflation has been the norm (see, for instance, Hagger, 1977, p.137;Fels and Tran Van Hoa, 1981;and Penm and Terrell, 1982). First, because a multivariate approach to explaining inflation has been the norm (see, for instance, Hagger, 1977, p.137;Fels and Tran Van Hoa, 1981;and Penm and Terrell, 1982).…”

“…Wage-Price Relation At least four reasons can be offered for apparently little detailed attention until recently by economists to the continuing debate between employers and unions concerning the direction of causation between wages and prices. First, because a multivariate approach to explaining inflation has been the norm (see, for instance, Hagger, 1977, p.137;Fels and Tran Van Hoa, 1981;and Penm and Terrell, 1982).…”

The Determinants of Relative Wage Change in Australia

“…Macroeconomic studies of the determination of aggregate wages are more common. See Fels and Tran (1981), Kirby (1981), Trivedi and Rayner (1978), Lewis and Kirby (1987), Gregory (1986), Simes and Richardson (1987) and additional Phillips Curve estimations for macroeconomic models.…”

Detecting the Sources of Inflation Using a Cointegrated Macroeconomic Model: A Case Study of Australia*

“…Third, our approach is an improvement on the methods used in the literature. For example, unlike the atheoretical VAR model used in previous studies of inflation (Fels and Tran Van Hoa, 1981), we take the long run cointegrating relationships into consideration and the model we use is not based on ad hoc and arbitrary variable selection procedures, but on the structure of the economic model. This comprehensive economic model is designed to identify long-run relationships as well as causal factors driving the rate of inflation.…”