A Neo-Keynesian Model of Nominal Wage Determination in Canada

In this report, the author discusses four paradigms of wage determination: the neoclassical model, the neo-Keynesian model, the Phillips curve, and the expectations-augmented Phillips curve. He presents a general specification that includes the four different specifications as special cases. The estimated parameters invite interpretation as a neo-Keynesian wage model. The RDX2 earnings variable is explained by the consumer price index, a product price deflator, normal productivity, a measure of labour-market tightness, U.S. wages, average hours, and the rate of change of employment. Finally, the estimated equation is analyzed within the context of the RDX2 macroeconomic model.