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Regional Wage Adjustments and Unemployment: Estimating the Time-Varying Wage Curve (in English)

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Author Info

  • Kamil Galušèák

    ()
    (Czech National Bank, Prague)

  • Daniel Münich

    ()
    (CERGE-EI, Prague)

Abstract

This paper investigates the flexibility of real wages at the regional level by estimating the wage curve, the relationship between regional unemployment, and the regional level of wages. For this purpose the authors use a sample of annual district-level unemployment and wage data in the Czech Republic from 1993 to 2001. Previous estimates of the wage curve for the Czech Republic suggested that the regional flexibility of real wages is extraordinarily low. Taking into account the endogeneity of unemployment, the authors' results indicate that regional real wages are flexible at the level observed in most developed and developing economies. The temporary deterioration in the regional flexibility observed during the 1997-99 Czech recession is explained by the standard efficiency wage model. Some indication of weakening elasticity since the end of the 1990s is probably associated with the sharp rise in the incidence of long-term unemployment. As this trend is expected to continue, it could further attenuate the elasticity and complicate adjustment processes if adverse shocks appear in the future, particularly after the Czech Republic's anticipated entry into the European Monetary Union.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 55 (2005)
Issue (Month): 1-2 (January)
Pages: 68-82

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Handle: RePEc:fau:fauart:v:55:y:2005:i:1-2:p:68-82

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Related research

Keywords: wage curve; wage flexibility; unemployment; panel data;

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References

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  1. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
  2. B Bell & Stephen Nickell & Glenda Quintini, 2000. "Wage Equations, Wage Curves and All That," CEP Discussion Papers dp0472, Centre for Economic Performance, LSE.
  3. Gavin Cameron & John Muellbauer, 2001. "Earnings, unemployment, and housing in Britain," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 203-220.
  4. Winter-Ebmer, Rudolf, 1996. "Wage curve, unemployment duration and compensating differentials," Labour Economics, Elsevier, vol. 3(4), pages 425-434, December.
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Cited by:
  1. Ian Babetskii, 2006. "Aggregate Wage Flexibility in Selected New EU Member States," Working Papers 2006/1, Czech National Bank, Research Department.
  2. Clar, Miquel & Dreger, Christian & Ramos, Raul, 2007. "Wage Flexibility and Labour Market Institutions: A Meta-Analysis," IZA Discussion Papers 2581, Institute for the Study of Labor (IZA).
  3. Jan Babecky & Kamil Dybczak & Kamil Galuscak, 2008. "Survey on Wage and Price Formation of Czech Firms," Working Papers 2008/12, Czech National Bank, Research Department.
  4. Pavel Gertler, 2010. "The wage curve: A panel data view of labour market segments," Working and Discussion Papers WP 3/2010, Research Department, National Bank of Slovakia.
  5. Jan Babecky & Kamil Dybczak, 2012. "Real Wage Flexibility in the European Union: New Evidence from the Labour Cost Data," Working Papers 2012/01, Czech National Bank, Research Department.
  6. Dinga, Marián & Münich, Daniel, 2010. "The impact of territorially concentrated FDI on local labor markets: Evidence from the Czech Republic," Labour Economics, Elsevier, vol. 17(2), pages 354-367, April.
  7. Pflüger, Michael P. & Blien, Uwe & Möller, Joachim & Moritz, Michael, 2010. "Labor Market Effects of Trade and FDI: Recent Advances and Research Gaps," IZA Discussion Papers 5385, Institute for the Study of Labor (IZA).

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