War‐associated geopolitical risks and uncertainty: Implications for real wages

Abstract

AbstractThis paper studies the effects of geopolitical risks and uncertainty on real wages. Employing UK data from 2000: Q1 to 2022: Q2 and a partial Nonlinear‐Autoregressive Distributed Lag (NARDL) framework, we find that war‐associated geopolitical risks and uncertainty have a statistically significant though mild positive impact on real wages. We find that domestic factors including economic policy uncertainty, productivity, economic growth, unemployment, inflation expectations and unionization play a stronger role in affecting real wages. Our findings suggest that the direct effects of war‐associated geopolitical risks and uncertainty on real wages are temporary. From a policy perspective, the course of real wages will depend more on inflation expectations, productivity and most importantly unionization. We conclude that if real wages in the UK are to rise on a consistent basis then workers and particularly unions will have to gain more bargaining leverage.