Equilibrium Interpretations of Employment and Real Wage Fluctuations

This paper uses an equilibrium approach to analyze monthly data on employment, hours worked, and real wages in manufacturing industries for six countries (Austria, Canada, Denmark, Japan, the United Kingdom, and the United States). If the data represent equilibrium responses to labor demand shocks (such as technology shocks), then the real wage should be strongly procyclical. However, the paper shows that, under certain structural interpretations of the data, the real wage is not strongly procyclical, even though the model is driven almost entirely by labor demand shocks.