Abstract
This paper studies the behaviour of employment and real wages in Greek manufacturing 1954‐1993. Since employment dynamics are driven by trade union membership, wage aspirations and adjustment costs, the paper tries to identify the relative importance of these propagation mechanisms for the stylized fact of full (un)employment persistence. The empirical results suggest that adjustment costs in firms’ decision making, due to institutional and technological constraints, are the main reason for the slow response of (un)employment to changes in the economic environment.