Price-wage nexus and the role of a tax system

Abstract

The presented study was aimed to test empirically major economic hypotheses dealing with long-term relationships between wages, producer prices, prices of consumer goods and services, the consumer price index, productivity of labour, unemployment and payroll expenses other than wages themselves. It is particularly important for this approach to distinguish between net wages shaping employees' decisions and gross wages driving employers' decisions. Because the variables are generated by non-stationary stochastic processes integrated of order 1 and 2, the analytical tool applied was a vector equilibrium correction model, VEqCM. The findings demonstrate that prices and payroll expenses are the major sources of shocks in the system in question. Wages and prices (particularly producer prices) are the most sensitive to this type of stochastic trends. In the Polish economy prices are integrated of order two, so they can be effectively influenced by antiinflationary policy.