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Real wages and local unemployment in the euro area

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  • Sanz de Galdeano, Anna
  • Turunen, Jarkko

Abstract

We present empirical evidence of the extent of wage rigidity in the euro area and European countries derived from longitudinal data on individuals. Wage rigidity is measured by the elasticity of individual real wages with respect to local unemployment. The results suggest that the elasticity is indeed negative, i.e. that real wages are lower in local labour markets with higher unemployment. The size of the elasticity for the euro area is similar to that found in previous studies for a number of countries, including the United States. Furthermore, there is some variation in the unemployment elasticity by worker groups and along the wage distribution. In particular, public sector wages are relatively rigid compared to wages in the private sector, contributing significantly to wage rigidity in the euro area. Country results show some heterogeneity in wage rigidity across European countries and suggest a tentative ranking of countries. JEL Classification: E24, J45, J64

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0471.

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Date of creation: Apr 2005
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Handle: RePEc:ecb:ecbwps:20050471

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Keywords: local unemployment; panel data; real wages; wage curve;

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  1. Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  2. P Canziani, 1997. "The Wage Curve in Italy and Spain. Are European Wages Flexible?," CEP Discussion Papers dp0375, Centre for Economic Performance, LSE.
  3. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  4. Barth, Erling & Bratsberg, Bernt & Naylor, Robin A. & Raaum, Oddbjørn, 2002. "Explaining Variations in Wage Curves: Theory and Evidence," Memorandum 03/2002, Oslo University, Department of Economics.
  5. Büttner, Thiess & Fitzenberger, Bernd, 1998. "Central wage bargaining and local wage flexibility: evidence from the entire wage distribution," ZEW Discussion Papers 98-39, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Bratsberg, Bernt & Turunen, Jarkko, 1996. "Wage curve evidence from panel data," Economics Letters, Elsevier, vol. 51(3), pages 345-353, June.
  7. Calmfors, Lars, 2001. "Unemployment, Labor Market Reform, and Monetary Union," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 265-89, April.
  8. Baltagi, Badi H. & Blien, Uwe, 1998. "The German wage curve: evidence from the IAB employment sample," Economics Letters, Elsevier, vol. 61(2), pages 135-142, November.
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Cited by:
  1. Irineu E. Carvalho Filho & Marcello M. Estevão, 2012. "Institutions, Informality, and Wage Flexibility: Evidence from Brazil," IMF Working Papers 12/84, International Monetary Fund.
  2. Marcello M. Estevão, 2005. "Product Market Regulation and the Benefits of Wage Moderation," IMF Working Papers 05/191, International Monetary Fund.

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