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Real wages and local unemployment in the euro area

Author

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  • Sanz de Galdeano, Anna
  • Turunen, Jarkko

Abstract

We present empirical evidence of the extent of wage rigidity in the euro area and European countries derived from longitudinal data on individuals. Wage rigidity is measured by the elasticity of individual real wages with respect to local unemployment. The results suggest that the elasticity is indeed negative, i.e. that real wages are lower in local labour markets with higher unemployment. The size of the elasticity for the euro area is similar to that found in previous studies for a number of countries, including the United States. Furthermore, there is some variation in the unemployment elasticity by worker groups and along the wage distribution. In particular, public sector wages are relatively rigid compared to wages in the private sector, contributing significantly to wage rigidity in the euro area. Country results show some heterogeneity in wage rigidity across European countries and suggest a tentative ranking of countries. JEL Classification: E24, J45, J64

Suggested Citation

  • Sanz de Galdeano, Anna & Turunen, Jarkko, 2005. "Real wages and local unemployment in the euro area," Working Paper Series 471, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005471
    Note: 81167
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp471.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Matthias Mohr, 2005. "A Trend-Cycle(-Season) Filter," Econometrics 0508004, University Library of Munich, Germany.
    2. Mr. Irineu E de Carvalho Filho & Mr. Marcello M. Estevão, 2012. "Institutions, Informality, and Wage Flexibility: Evidence From Brazil," IMF Working Papers 2012/084, International Monetary Fund.
    3. Mr. Marcello M. Estevão, 2005. "Product Market Regulation and the Benefits of Wage Moderation," IMF Working Papers 2005/191, International Monetary Fund.
    4. Marcello M. Esteváo, 2007. "Structural changes and labor productivity slowdown in the Euro Area," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 25(53), pages 336-367, January.
    5. P. Capros & Denise Van Regemorter & Leonidas Paroussos & P. Karkatsoulis & C. Fragkiadakis & S. Tsani & I. Charalampidis & Tamas Revesz, 2013. "GEM-E3 Model Documentation," JRC Research Reports JRC83177, Joint Research Centre.

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    More about this item

    Keywords

    local unemployment; Panel data; real wages; wage curve;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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