Cointegration relationship between realwages, productivity and unemployment:balance analysis in the Mexican economy

Abstract

The objective of this research is to analyze how the minimum wage policy affects real wages, productivity and unemployment in Mexico and identify the causal relationships between the variables, in the short and long term. Although the minimum wage is set in Mexico, real wages have remained stagnant in recent years, which makes it necessary to analyze the relationship between macroeconomic variables to identify and determine economic policy opportunities. With monthly data from 2009 to 2017 of INEGI, and through a Granger cointegration and error correction model, the determinants of real wages were identified, as well as the short and long-term relationships between real wages, productivity and unemployment, considering the evolution of the minimum wage in Mexico. The long-term relationship between productivity and real wages is elastic. In the short term, productivity negatively impacts real wages. On the other hand, the unemployment rate is negatively related to real wages, both short and long term. Finally, in the long term, the real salary is inelastic compared to the minimum wage, productivity and the unemployment rate