AN EXPLORATIVE EMPIRICAL ANALYSIS OF THE INFLUENCE OF LABOUR FLOWS ON WAGE FORMATION USING THE JOHANSEN APPROACH bY

This study presents an explorative econometric analysis of the influence of labour market flows on wage formation. It applies the vector cointegration and common trends methodology of Johansen (1995). According to this approach, a combination of the flow of layoffs (flow from employment to unemployment) and the flow. of filled vacancies (successful matches) appears to be an adequate alternative to the unemployment rate as indicator of labour market tightness in the wage equation for The Netherlands.. * The first author is research associate at the University of Groningen and the second author is professor of economics at the Free University, Amsterdam, and is member of the Scientific Council for Government Policy at The Hague. Correspondence to second author, Free University, Department of Economics, Applied Labour Economics Reserach Team (ALERT), De Boelelaan 1105, NL-108 1 HV Amsterdam, telephone: +3 1 20 4446044, facsimile: 3-3 1 20 4446005, email: fbutteraecon. vu. nl; 1