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Regional Wage Adjustments and Unemployment: Estimating the Time-Varying Wage Curve (in English)

  • Kamil Galušèák


    (Czech National Bank, Prague)

  • Daniel Münich


    (CERGE-EI, Prague)

This paper investigates the flexibility of real wages at the regional level by estimating the wage curve, the relationship between regional unemployment, and the regional level of wages. For this purpose the authors use a sample of annual district-level unemployment and wage data in the Czech Republic from 1993 to 2001. Previous estimates of the wage curve for the Czech Republic suggested that the regional flexibility of real wages is extraordinarily low. Taking into account the endogeneity of unemployment, the authors' results indicate that regional real wages are flexible at the level observed in most developed and developing economies. The temporary deterioration in the regional flexibility observed during the 1997-99 Czech recession is explained by the standard efficiency wage model. Some indication of weakening elasticity since the end of the 1990s is probably associated with the sharp rise in the incidence of long-term unemployment. As this trend is expected to continue, it could further attenuate the elasticity and complicate adjustment processes if adverse shocks appear in the future, particularly after the Czech Republic's anticipated entry into the European Monetary Union.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 55 (2005)
Issue (Month): 1-2 (January)
Pages: 68-82

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Handle: RePEc:fau:fauart:v:55:y:2005:i:1-2:p:68-82
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  1. Bell, Brian & Nickell, Stephen & Quintini, Glenda, 2002. "Wage equations, wage curves and all that," Labour Economics, Elsevier, vol. 9(3), pages 341-360, July.
  2. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  3. Winter-Ebmer, Rudolf, 1996. "Wage curve, unemployment duration and compensating differentials," Labour Economics, Elsevier, vol. 3(4), pages 425-434, December.
  4. Gavin Cameron & John Muellbauer, 2001. "Earnings, unemployment, and housing in Britain," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 203-220.
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