IDEAS home Printed from
   My bibliography  Save this paper

Do wages reflect labor productivity? The case of Belgian regions


  • Jozef Konings
  • Luca Marcolin


Unemployment rates are significantly different across regions in Belgium. In the search for an explanation for this fact, we simultaneously estimate a wage and labor productivity equations where we include regional dummies as explanatory variables. We find that the wage-productivity gap reached 11% for Brussels and 4.2% for Wallonia in the years 2005-2012. This was driven by the negative performance in labor productivity of the firms in these regions relative to Flanders, which more than compensated for the advantage in unit labor costs they could profit from. On the other hand, the gap for Brussels is found to be currently decreasing in time thanks to a positive growth rate in labor productivity. The sign and magnitude of the wage-productivity gap is robust to the estimation of the relationship using hours worked instead of employees, and including benefits to salaries into the cost of labor. These results are coherent with the existence at the regional level of institutional barriers to the firm-level adjustment of wages to labor productivity. Among the possible explanations for this, our estimations suggest that a reduction in the gap between labor costs and productivity may be achieved through greater wage flexibility at the regional level.

Suggested Citation

  • Jozef Konings & Luca Marcolin, 2013. "Do wages reflect labor productivity? The case of Belgian regions," Working Papers VIVES Research Centre for Regional Economics 38, KU Leuven, Faculty of Economics and Business, VIVES Research Centre for Regional Economics.
  • Handle: RePEc:ete:vivwps:38

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Papke, Leslie E. & Wooldridge, Jeffrey M., 2005. "A computational trick for delta-method standard errors," Economics Letters, Elsevier, vol. 86(3), pages 413-417, March.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Enrico Spolaore & Alberto Alesina & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December.
    4. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    5. Patrick Bolton & GĂ©rard Roland, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1057-1090.
    6. Reynaerts, Jo & Vanschoonbeek, Jakob, 2016. "The Economics of State Fragmentation - Assessing the Economic Impact of Secession," MPRA Paper 69681, University Library of Munich, Germany.
    7. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2014. "Democracy Does Cause Growth," NBER Working Papers 20004, National Bureau of Economic Research, Inc.
    8. Anthony J. Venables, 2010. "Economic geography and African development," Papers in Regional Science, Wiley Blackwell, vol. 89(3), pages 469-483, August.
    9. Malani, Anup & Reif, Julian, 2015. "Interpreting pre-trends as anticipation: Impact on estimated treatment effects from tort reform," Journal of Public Economics, Elsevier, vol. 124(C), pages 1-17.
    10. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    11. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    12. Everaert, Gerdie & Pozzi, Lorenzo, 2007. "Bootstrap-based bias correction for dynamic panels," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1160-1184, April.
    13. Ignace De Vos & Gerdie Everaert & Ilse Ruyssen, 2015. "Bootstrap-based bias correction and inference for dynamic panels with fixed effects," Stata Journal, StataCorp LP, vol. 15(4), pages 986-1018, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ete:vivwps:38. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (library EBIB). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.