Abstract
Using a maximum likelihood cointegration approach we find two long-run relationships between central government, local government, and private sector wages in Sweden. This means that there is one common trend for the three sectoral wages. Private sector wages are weakly exogenous for the estimation of the long-run relationships. This suggests that the private sector is the wage leader. Testing linear restrictions on the estimated cointegrating space, we reject stationarity for the three relative wages using likelihood ratio-tests. The hypotheses of homogeneity for the two cointegrating vectors, i.e., that wages do not diverge in the long run, is also rejected.
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This work is partly financed by Tore Browaldhs Stiftelse. Henrik Hansen has kindly made a maximum likelihood cointegration routine for the RATS software available to us. We are indebted to Reinhold Bergström, Per-Anders Edin, Bertil Holmlund, Søren Johansen, Katarina Juselius, Anders Vredin, Anders Warne, and the referees for comments on previous drafts. The usual disclaimer applies. Previous versions of the paper, titeled “Cointegrating Sectoral Wages in Sweden,” were presented at Econometric Society, European Meeting, Cambridge, UK, 1991 and the IRES, Université Catholique de Louvain, international workshop “Disaggregate labour markets,” Wavre, Belgium, 1992.