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Real Wage Flexibility in the European Union: New Evidence from the Labour Cost Data

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  • Jan Babecky
  • Kamil Dybczak

Abstract

This paper presents evidence on the extent of real wage flexibility in 24 EU member countries based on the Eurostat labour cost data covering 2000Q1-2010Q2. The term 'wages' refers, for brevity, to total hourly labour costs and their two main components, namely wages and salaries per hour, and non-wage costs. Following the structural VAR approach, real wage flexibility is measured as the responsiveness of real wages to real (permanent) versus nominal (temporary) shocks. The data shows that the impact of the 2008/2009 crisis on real wage adjustment has not been uniform across the sample countries, with some evidence for an increase in real wage rigidity. A strong negative correlation is observed between our aggregate measure of wage flexibility and both the ESCB Wage Dynamics Network firm-level survey estimates of downward real wage rigidity and the International Wage Flexibility Project microeconomic estimates of downward real wage rigidity. Finally, we find that institutional features of labour markets could help explain the variation in the results across countries; for example, stricter employment protection legislation and stronger presence of unions go hand in hand with higher real wage rigidity.

Suggested Citation

  • Jan Babecky & Kamil Dybczak, 2012. "Real Wage Flexibility in the European Union: New Evidence from the Labour Cost Data," Working Papers 2012/01, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2012/01
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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2012_01.pdf
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    References listed on IDEAS

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    Cited by:

    1. Piotr Lewandowski & Marek Antosiewicz & Jan Baran & Iga Magda & Monika Potoczna & Maciej Lis & Joanna Tyrowicz & Agnieszka Kaminska & Jan Hagemejer & Karol Pogorzelski, 2013. "Employment in Poland 2012. Labour Market During the Recovery from the Crisis," Books and Reports published by IBS, Instytut Badan Strukturalnych, number zwp2012 edited by Piotr Lewandowski & Iga Magda, january.
    2. Tomas Adam & Robert Ambrisko & Oxana Babecka Kucharcukova & Jan Babecky & Sona Benecka & Jan Bruha & Vilma Dingova & Dana Hajkova & Tomas Holub & Eva Hromadkova & David Kocourek & Lubos Komarek & Zlat, 2014. "Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2014," Occasional Publications - Edited Volumes, Czech National Bank, number as14 edited by Kamila Kulhava & Jakub Mateju, January.
    3. Gurvich, E. & Vakulenko, E., 2018. "Studies of Russian Labor Market and Economic Policy," Journal of the New Economic Association, New Economic Association, vol. 37(1), pages 203-212.
    4. Lucia Dalla Pellegrina & Margherita Saraceno, 2017. "Posting of workers across the EU: an empirical investigation," European Journal of Law and Economics, Springer, vol. 44(3), pages 423-451, December.
    5. Tomas Adam & Oxana Babecka Kucharcukova & Jan Babecky & Jan Bruha & Tomas Holub & Eva Hromadkova & David Kocourek & Lubos Komarek & Zlatuse Komarkova & Kamila Kulhava & Petr Kral & Ivana Kubicova & Ji, 2013. "Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2013," Occasional Publications - Edited Volumes, Czech National Bank, number as13 edited by Jakub Mateju & Kamila Kulhava, January.

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    More about this item

    Keywords

    Labour cost indices; real wage rigidity; structural VAR.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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