A variation of the wage-determination equation given in Exercise 8.17 is as follows:

where

W = wages and salaries per employee
V = unfilled job vacancies in Great Britain as a percentage of the total number of employees in Great Britain
X = gross domestic product per person employed
M = import prices
Mtˆ’1 = import prices in the previous (or lagged) year

a. Interpret the preceding equation.
b. Which of the estimated coefficients are individually statistically significant?
c. What is the rationale for the introduction of the X variable? A priori, is the sign of X expected to be negative?
d. What is the purpose of introducing both Mt and Mtˆ’1 in the model?
e. Which of the variables may be dropped from the model? Why?
f. Test the overall significance of the observed regression.

Transcribed Image Text:

W, = 1.073 (0.797) (0.812) + 5.288V, – 0.116X; + 0.054M, + (0.111) (0.022) 0.046M1–1 (0.019) R2 = 0.934 df=14