The following table gives data on indexes of real compensation per hour (Y) and output per hour (X2), with both indexes to base 1992 = 100, in the business sector of the U.S. economy for the period 1960€“1999, as well as the civilian unemployment rate (X3) for the same period.

a. How would you decide whether it is wage compensation that determines labor productivity or  the other way round?

b. Develop a suitable model to test your conjecture in (a), providing the usual statistics.

c. Do you think the unemployment rate has any effect on wage compensation, and if so, how would you take that into account? Show the necessary statistical analysis.

Transcribed Image Text:

Observation Observation COMP PRODUCT UNRate COMP PRODUCT UNRate 7.1 1960 60.0 48.8 5.5 1980 89.5 80.4 50.6 52.9 89.5 1981 1982 1961 61.8 6.7 82.0 81.7 7.6 1962 63.9 5.5 90.9 9.7 84.6 1963 65.4 55.0 5.7 1983 91.0 9.6 1964 67.9 57.5 5.2 1984 91.3 87.0 7.5 92.7 1965 69.4 59.6 4.5 1985 88.7 7.2 62.0 63.4 1986 1966 71.9 3.8 95.8 91.4 7.0 73.8 96.3 1967 3.8 1987 91.9 6.2 1968 76.3 65.4 3.6 1988 97.3 93.0 5.5 1969 95.9 93.9 77.4 65.7 3.5 1989 5.3 78.9 1970 67.0 4.9 1990 96.5 95.2 5.6 1971 80.4 69.9 5.9 1991 1992 97.5 96.3 6.8 72.2 100.0 1972 82.7 5.6 100.0 7.5 84.5 100.5 1973 74.5 4.9 1993 99.9 6.9 99.7 1974 83.5 73.2 5.6 1994 101.9 6.1 84.4 1975 75.8 8.5 1995 99.3 102.6 5.6 78.5 1976 86.8 7.7 1996 99.7 105.4 5.4 7.1 107.6 1977 87.9 79.8 1997 100.4 4.9 1978 89.5 4.5 80.7 6.1 1998 104.3 110.5 114.0 1979 89.7 80.7 5.8 1999 107.3 4.2