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Real Wage Cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data

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  • G. Verdugo

Abstract

We study the response of real wages to the business cycle in eight major Eurozone countries before and during the Great Recession. Average real wages are found to be acyclical, but this reflects, in large part, the effect of changes in the composition of the labour force related to unemployment variations over the cycle. Using longitudinal micro data from the ECHP and SILC panels to control for composition effects, we estimate the elasticities of real wage growth to unemployment increases between -0.6 and -1 over the period 1994-2011. Composition effects have been particularly large since 2008, and they explain most of the stagnation or increase in the average wage observed in some countries from 2008 to 2011. In contrast, at a constant labour force composition in terms of education and experience, the figures indicate a significant decrease in average wages during the downturn, particularly in countries most affected by the crisis. Overall, there is no evidence of downward nominal wage rigidity during the Great recession in most countries in our sample.

Suggested Citation

  • G. Verdugo, 2015. "Real Wage Cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data," Working papers 570, Banque de France.
  • Handle: RePEc:bfr:banfra:570
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    Cited by:

    1. Effrosyni Adamopoulou & Emmanuele Bobbio & Marta De Philippis & Federico Giorgi, 2016. "Wage rigidities and business cycle fluctuations: a linked employer-employee analysis," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-32, December.
    2. Gregory Verdugo & Guillaume Allegre, 2017. "Labour force participation and job polarization : evidence from Europe during the great recession," Sciences Po publications 2017-16, Sciences Po.
    3. Jean-Michel Grandmont, 2016. "Endogenous Procyclicality of Labor Productivity, Employment, Real Wages and Effort in Conditionally Heteroskedastic Sunspots Unemployment Business Cycles with Negishi-Solow Efficiency Wages," Working Papers 2016:10, Department of Economics, University of Venice "Ca' Foscari".
    4. Effrosyni Adamopoulou & Emmanuele Bobbio & Marta De Philippis & Federico Giorgi, 2016. "Allocative efficiency and aggregate wage dynamics in Italy," Questioni di Economia e Finanza (Occasional Papers) 340, Bank of Italy, Economic Research and International Relations Area.
    5. repec:bfr:rueban:2018:56 is not listed on IDEAS
    6. Robert Anderton & Arno Hantzsche & Simon Savsek & Máté Tóth, 2017. "Sectoral Wage Rigidities and Labour and Product Market Institutions in the Euro Area," Open Economies Review, Springer, vol. 28(5), pages 923-965, November.
    7. Schilirò, Daniele, 2017. "Imbalances and policies in the Eurozone," MPRA Paper 82847, University Library of Munich, Germany.
    8. Adamopoulou, Effrosyni (Efi) & Bobbio, Emmanuele & De Philippis, Marta & Giorgi, Federico, 2018. "Reallocation and the Role of Firm Composition Effects on Aggregate Wage Dynamics," IZA Discussion Papers 11313, Institute for the Study of Labor (IZA).
    9. Ho, Sin-Yu & Njindan Iyke, Bernard, 2018. "Unemployment and Inflation: Evidence of a Nonlinear Phillips Curve in the Eurozone," MPRA Paper 87122, University Library of Munich, Germany.

    More about this item

    Keywords

    age cyclicality; wage rigidity; Great recession; Euro zone.;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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