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On Wage Formation, Wage Development and Flexibility: A comparison between European countries and the United States

  • Marga Peeters
  • Ard den Reijer

For Germany, Spain, France, the Netherlands and the US an Error Correction Model with a long-term non-linear wage equation is estimated by 3-SLS to obtain consistent estimates, accounting for endogeneity and common shocks. On the basis of the estimated parameter elasticities of wages with respect to labour productivity, value added and consumer prices, taxes, unemployment and replacement rates are computed along with the wage contributions. The results indicate that the dominant role of prices in the formation of wages in the seventies and eighties was taken over by labour productivity in the US and unemployment in Spain and - almost- in the Netherlands at the end of the nineties. Evidence for a stronger real wage flexibility of the US in comparison with the four European countries is not found.

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File URL: http://www.dnb.nl/binaries/staff108_tcm46-146885.pdf
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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 108.

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Length: 24 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:dnb:staffs:108
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  1. Grubb, David B. & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, vol. 21(1-2), pages 11-39.
  2. Brian Bell & Stephen Nickell & Glenda Quintini, 2000. "Wage equations, wage curves and all that," LSE Research Online Documents on Economics 20165, London School of Economics and Political Science, LSE Library.
  3. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  4. Olympia Bover & Pilar GarcĂ­a-Perea & Pedro Portugal, 2000. "Labour market outliers: Lessons from Portugal and Spain," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 379-428, October.
  5. Gruner, Hans Peter & Hefeker, Carsten, 1999. " How Will EMU Affect Inflation and Unemployment in Europe?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 33-47, March.
  6. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  7. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
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