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The role of Institutions in explaining wage determination in the Euro Area: a panel cointegration approach

Listed author(s):
  • Mariam Camarero

    (Department of Economics, University Jaume I. Campus de Riu Sec E-12071 Castellón de la Plana, Spain)

  • Gaetano D’Adamo

    (Department of Applied Economics II, University of Valencia. Av.da dels Tarongers s/n 46022 Valencia, Spain)

  • Cecilio Tamarit

    (Department of Applied Economics II, University of Valencia. Av.da dels Tarongers s/n 46022 Valencia, Spain)

Over the last 15 years, the evolution of labor costs has been very diverse across EMU countries. Since wages have important second-round effects on prices and competitiveness, and EMU countries do not have the tool of the nominal exchange rate to correct for such imbalances, understanding the determinants of the wage is a matter of increasing concern and debate. We estimate the equilibrium wage equation for the Euro Area over the period 1995-2011 using panel cointegration techniques that allow for cross-section dependence and structural breaks. The results show that the equilibrium wage has a positive relation with productivity and negative relation with unemployment, as expected. We also include institutional variables in our analysis, showing that a more flexible labor market is consistent with long-run wage moderation. Allowing for a regime break, we find that, since 2004, possibly due to increased international competition, wage determination was more strictly related to productivity, and real wage appreciation triggers a drop in the real wage. Furthermore, results point to a wage-moderating role of government intervention and concertation in wage bargaining.

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File URL: ftp://147.156.210.157/RePEc/pdf/eec_1407.pdf
File Function: First version, 2014
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Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1407.

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Date of creation: Jul 2014
Handle: RePEc:eec:wpaper:1407
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  1. Belot, Michèle & van Ours, Jan C, 2000. "Does the Recent Success of some OECD Countries in Lowering their Unemployment Rates lie in the Clever Design of their Labour Market Reforms?," CEPR Discussion Papers 2492, C.E.P.R. Discussion Papers.
  2. Felbermayr, Gabriel & Hauptmann, Andreas & Schmerer, Hans-Jörg, 2012. "International trade and collective bargaining outcomes : evidence from German employer-employee data," IAB Discussion Paper 201207, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  3. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
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  14. Jushan Bai & Chihwa Kao & Serena Ng, 2007. "Panel Cointegration with Global Stochastic Trends," Center for Policy Research Working Papers 90, Center for Policy Research, Maxwell School, Syracuse University.
  15. Jushan Bai & Serena Ng, 2001. "A Panic Attack on Unit Roots and Cointegration," Economics Working Paper Archive 469, The Johns Hopkins University,Department of Economics.
  16. Zenon Kontolemis & Dimitri G Demekas, 1999. "Government Employment and Wages and Labor Market Performance," IMF Working Papers 99/55, .
  17. Booth, Alison L, 1984. "A Public Choice Model of Trade Union Behaviour and Membership," Economic Journal, Royal Economic Society, vol. 94(376), pages 883-898, December.
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  19. David G. Blanchflower & Andrew J. Oswald, 1994. "Estimating a Wage Curve for Britain 1973-1990," NBER Working Papers 4770, National Bureau of Economic Research, Inc.
  20. Robertson, Raymond, 2003. "Exchange rates and relative wages: evidence from Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 25-48, March.
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