Causal Relationships in Australian Wage Inflation and Minimum Award Rates

Allan Fels and Van Tran

The Economic Record, 1981, vol. 57, issue 1, 23-34

Abstract: When variables are correlated in time‐series studies, it is often difficult to determine which is cause and effect, and in what sense. This paper applies multivariate time‐series tests of causality to Australian 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 which strikes are exogenous:the size of Arbitration Commission awards is determined by strikes (suggesting that a trade union capture theory of Arbitration Commission regulation may apply):money wages 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 relationship) by money wages.

Date: 1981
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