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Labour market conditions and wage inflation in CEE economies

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  • Simone Auer

    (Bank of Italy)

Abstract

In this paper, we test whether a wage Phillips curve can still be considered a reliable approximation of nominal wage determination in Poland, Hungary and the Czech Republic. The empirical evidence is broadly in favour of the existence of a negative relation between labour market slack and nominal wage inflation in the Central and Eastern European (CEE) economies between 2001 and 2017. However, after 2009 wage inflation was significantly below the value that would have been predicted by an estimated wage Phillips curve. The results of rolling OLS estimations confirm a weakening of the negative relation with the unemployment gap. A closer look at the recent evolution of labour market conditions in Poland, Hungary and the Czech Republic suggests that the composition effects on labour supply, especially those linked to demographic and migration trends, could be particularly relevant. Other possible explanations generally mentioned with reference to advanced economies - such as a large share of long-term unemployment, part-time and temporary workers or workers that are underemployed or marginally attached to the labour market - probably had no role or only a marginal one in the recent weak nominal wage growth in the three countries.

Suggested Citation

  • Simone Auer, 2018. "Labour market conditions and wage inflation in CEE economies," Questioni di Economia e Finanza (Occasional Papers) 460, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_460_18
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2018-0460/QEF_460_18.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    wage growth; Phillips curve; unemployment; labour supply;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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