The Canadian real wage Phillips curve: a sectoral shift interpretation

Abstract

Post World War Two data in Canada is found to be consistent with the hypothesis that nominal wages, prices, and real wages are integrated of order two, while the unemployment rate is integrated of order one. When considering bivariate statistical relationships, it is found that solid evidence for co-integration exists only between the rate of change of real wages and the level of the unemployment rate. That is, the data are consistent with a ‘real’ Phillips curve interpretation. It is argued that this finding can be explained by the ‘sectoral reallocation’ view of unemployment.