Wage Rigid: The Relationship between Real Output and Wage with or without Monetary Policy

Abstract

The relationship between real wage and output is a major area of interest within field of both macroeconomic and microeconomic. Labour market has intimate relationship with wage determination, and the wage level, representing individual’s earning and in turn affect level of poverty and living standard to some extent. This paper uses a series of regression econometric models to examine the relationship between real wage and real output level. This paper also assesses impact of different monetary policy on this relationship, either under interest target or free interest rate. Additionally, results from the economic models would be used to compare with that from Keynesian theory. Identify the relationship between wage and output would be helpful for the government to make policy decision. In a way to boost economic growth sustainably and raising living standard.