A Vector Autoregression Model for Depicting the Relation Between Labour Market Economic Indicators and Real Wages in the United States Manufacturing Sector

In recent years, the US manufacturing sector and its labour market dynamics have gained importance in the face of resurgent protectionism and increased governmental strategic investment plans. Simultaneously, real wage growth in the manufacturing sector has diverged compared to the wider economy. While studies have previously analysed the relationship between labour market conditions and real wages in the wider economy, few have specifically evaluated the manufacturing sector in this respect. To this end, we selected a comprehensive list of economic indicators covering the key aspects of the sectoral labour market. Subsequently, a vector autoregression (VAR) model was developed, enabling us to account for time lags and the interconnectedness of each variable. In addition to this, graphs and plots were created to provide a visual understanding of the database, results, and labour market dynamics. The findings of our model suggest that the economic consensus on real wage determination in the wider economy also holds for the manufacturing sector. An important exception to this is the strongly negative relationship between the inflation rate and real wages.