How flexible are real wages in EU countries? A panel investigation
AbstractIn this paper we estimate the degree of real wage flexibility in 19 EU countries in a wage Phillips curve panel framework. We find evidence for a reaction of wage growth to unemployment and productivity growth. However, due to unemployment persistence, over time the real wage response weakens substantially. Our results suggest that the degree of real wage flexibility tends to be larger in the central and eastern European (CEE) countries than in the euro area; weaker in downturns than during upswings. Moreover, there exists an inflation threshold, below which real wage flexibility seems to decrease. Finally, we find that part of the heterogeneity in real wage flexibility and unemployment might be related to differences in the wage bargaining institutions and more specifically the extent of labour market regulation in different country groups within the EU. JEL Classification: J31, J38, P5
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1360.
Date of creation: Jul 2011
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Find related papers by JEL classification:
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
- P5 - Economic Systems - - Comparative Economic Systems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-27 (All new papers)
- NEP-CBA-2011-07-27 (Central Banking)
- NEP-EEC-2011-07-27 (European Economics)
- NEP-EUR-2011-07-27 (Microeconomic European Issues)
- NEP-LAB-2011-07-27 (Labour Economics)
- NEP-LMA-2011-07-27 (Labor Markets - Supply, Demand, & Wages)
- NEP-TRA-2011-07-27 (Transition Economics)
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