IDEAS home Printed from https://ideas.repec.org/p/cbi/wpaper/05-rt-20.html
   My bibliography  Save this paper

Solving the Wage Puzzle: Does the “Non-Employment Index” Explain European Wage Dynamics Since the Global Financial Crisis?

Author

Listed:
  • Byrne, Stephen

    (Central Bank of Ireland)

  • Zakipour-Saber, Shayan

    (Central Bank of Ireland)

Abstract

Contrary to the predictions of the traditional Phillips curve model, the euro-area experienced subdued wage growth despite a tightening labour market during the period 2013 to 2017. This has led to a debate around whether the standard unemployment rate, or indeed currently used broader measures, adequately capture the level of labour slack in an economy. In this paper, we construct a measure of labour market slack for twelve European countries, the Non-Employment Index (NEI). The NEI weighs each group outside the labour force by their relative probability of transitioning into employment. Using pseudo out-of-sample conditional forecasts, we show that the NEI is a better predictor of wage dynamics during the period 2013-2017 than other traditional measures of slack in countries exposed to the european sovereign debt crisis. The improvement is seen both in terms of point and density forecasts. We confirm this result in a panel framework, controlling for expectations, external factors, and productivity.

Suggested Citation

  • Byrne, Stephen & Zakipour-Saber, Shayan, 2020. "Solving the Wage Puzzle: Does the “Non-Employment Index” Explain European Wage Dynamics Since the Global Financial Crisis?," Research Technical Papers 05/RT/20, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:05/rt/20
    as

    Download full text from publisher

    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/05rt20-solving-the-wage-puzzle-does-the-non-employment-index-explain-european-wage-dynamics-since-the-global-financial-crisis-(byrne-and-zakipour-saber).pdf?sfvrsn=6
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbi:wpaper:05/rt/20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fiona Farrelly (email available below). General contact details of provider: https://edirc.repec.org/data/cbigvie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.