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Driving forces behind the sectoral wage costs differentials in Europe

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  • Camille Logeay
  • Sabine Stephan

    ()
    (IMK at the Hans Boeckler Foundation)

  • Rudolf Zwiener

    ()
    (IMK at the Hans Boeckler Foundation)

Abstract

In 2004, Eurostat starts publishing new figures on hourly wage costs for all European countries. These figures are new in several respects: It is the first time that internationally comparable hourly figures on wage costs are available covering a quite important time period (1995-2005), so that not only cross-country comparisons but also dynamic analyzes are possible. Furthermore, these figures are fairly detailed at the sectoral level, therefore allowing for inter-sectoral comparisons. Concerning Germany, the Eurostat statistics provide quite unexpected insights; the gap between wage costs in the manufacturing sector and the (private and business) services sector is much larger than in other countries. This study aims at giving some explanations. According to theory, various explanations are possible. First, the neo-classical theory emphasizes factors affecting or indicating the level of individual productivity, as well as firm or sectoral productivity; indicators corresponding to this approach are tested. Second, dropping the assumption of perfect competition on both labor and goods markets allows for other factors (mark-up, market power) to influence the wage costs levels; these potential determinants are also tested. Finally, we think that the structure of demand (driven by domestic or foreign demand) could also have a major impact on wages in the industry and the services sector and indeed this factor seems to play an important role. This paper is structured as follows: First, the new Eurostat statistics is presented focussing on some interesting descriptive results. In the second section, we present a list of potential determinants of wage differentials between the industry and the services sector derived from theory and literature. A bivariate analysis (correlation) is then performed and conclusions are drawn. In a third step, a multivariate analysis (panel estimation) is performed. The final section concludes.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 10-2011.

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Length: 44 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:imk:wpaper:10-2011

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  1. Véronique Genre & Daphne Momferatou & Gilles Mourre, 2005. "Wage diversity in the euro area - an overview of labour cost differentials across industries," Occasional Paper Series 24, European Central Bank.
  2. Alan Manning, 2003. "The real thin theory: monopsony in modern labour markets," LSE Research Online Documents on Economics 20050, London School of Economics and Political Science, LSE Library.
  3. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
  4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  6. Jens Suedekum & Uwe Blien, 2007. "Stimulating Employment Growth with Higher Wages? A New Approach to Addressing an Old Controversy," Kyklos, Wiley Blackwell, vol. 60(3), pages 441-464, 08.
  7. Haisken-DeNew, John P. & Schmidt, Christoph M., 1999. "Industry Wage Differentials Revisited: A Longitudinal Comparison of Germany and USA (1984-1996)," IZA Discussion Papers 98, Institute for the Study of Labor (IZA).
  8. Hans-Werner Sinn, 2007. "Internationaler Vergleich der Arbeitskosten: Warum Deutschland keine starken Lohnerhöhungen verträgt," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(04), pages 54-59, 02.
  9. Erkan Erdil & I. Hakan Yetkiner, 2001. "A comparative analysis of inter-industry wage differentials: industrialized versus developing countries," Applied Economics, Taylor & Francis Journals, vol. 33(13), pages 1639-1648.
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