Measurement issues with real wage gaps in New Zealand

Abstract

This thesis extends the existing literature on the real wage gap initiated by Bruno and Sachs' (1985) seminal work "The Economics of Worldwide Stagflation." Its primary contribution is an extensive sensitivity analysis of the impact of using different data series, methodological frameworks, and functional forms on the measured real wage gap. Cobb-Douglas and CES production functions are estimated using New Zealand data. The thesis finds that using different definitions of the actual real wage can change the measured real wage gap by up to 30%, but that the warranted real wage is relatively insensitive to other changes in data and methodology. The real wage gap does not play a significant role in explaining the path of employment or unemployment in New Zealand between 1967 and 1991.