Investigating a wage curve for New Zealand

This paper examines evidence for a stable inverse relationship between the wages paid to workers and the unemployment rate across local labour markets in New Zealand, a phenomenon known as the wage curve. A variety of specifications of the wage curve are examined. Overall, weighted least squares estimates reveal a value of the unemployment elasticity of pay that is close to the international consensus estimate of —0.1. Some support is also found for the concept of a positive long-run relationship between wages and unemployment existing alongside the wage curve. However, there is evidence of potential endogeneity of the unemployment rate, although data limitations severely restrict the availability of suitable instruments.