VAR and generalized impulse response analysis of manufacturing unit labor costs

This paper examines the relationship among manufacturing unit labor costs in the United States, United Kingdom, and Canada. The analysis is conducted within the context of an economic system utilizing the recently developed method of generalized impulse response analysis to simulate the responses of the cost series to disturbances. The results indicate that, while unit labor costs do not share a common stochastic trend, there are significant responses in the unit labor costs of each country to shocks in the costs of other countries that are not captured by standard interpretation of the multiple-equation model results. The findings indicate the presence of significant linkages among unit labor costs in the countries studied. The results are consistent with the economic environment of manufacturing operations being characterized by a competitive, integrated marketplace.