AN ECONOMETRIC ANALYSIS OF RELATIONSHIP BETWEEN REAL WAGES AND EMPLOYMENT

The relationship between real wages and employment has long been the controversial issue in economic theory. In this respect this study investigates the existence and the direction of a long-run relationship between real wages and employment level. For this purpose, cointegration and causality tests are applied to quarterly data from 1988:1 to 2008:4 of Turkish private manufacturing industry. The results indicate the existence of a long-run relationship between real wages and employment level. When the direction of this relationship is analyzed, obtained results support the view of Neo-classical economists. According to this, a reduction in real wages will increase the employment level.