Nominal and real wage flexibility in EMU
Both common macroeconomic shocks and country-specific developments have subjected the flexibility of wage setting mechanisms in the euro area to a stress test in recent years. Against this background, this paper takes a fresh look at wage flexibility in EMU and attempts to draw a few lessons from the experience of the early years. First, we set the stage for the analysis by providing a brief description of the stylised facts regarding nominal and real wage and unit labour cost developments in the euro area over the recent business cycle. Then, the paper presents an empirical assessment of wage inertia based on new econometric estimates of a Phillips-curve type wage equation across euro area countries and offers an interpretation of the main findings with respect to nominal and real wage flexibility. Finally, we investigate the cyclical responsiveness of relative competitive positions among euro area countries. We conclude that from a bird's eye perspective euro area wage and labour cost dynamics have been quite benign in the past couple of years. However, our estimates suggest that persistent cross-country differences in wage and labour cost developments have not always reflected warranted adjustment needs; they are rather indicative of an eventually insufficient degree of nominal and real wage flexibility in the euro area.
|Date of creation:||Jun 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Inter-institutional relations and communication Unit, B-1049 Brussels|
Fax: +32 2 298.08.23
Web page: http://ec.europa.eu/economy_finance/index_en.htm
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steinar Holden, 2002.
"The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe,"
NBER Working Papers
8865, National Bureau of Economic Research, Inc.
- Steinar Holden, 2004. "The Costs of Price Stability: Downward Nominal Wage Rigidity in Europe," Economica, London School of Economics and Political Science, vol. 71(281), pages 183-208, 05.
- Groth, Charlotta & Johansson, Asa, 2004.
"Bargaining structure and nominal wage flexibility,"
European Economic Review,
Elsevier, vol. 48(6), pages 1349-1365, December.
- Knoppik, Christoph & Beissinger, Thomas, 2001.
"How Rigid are Nominal Wages? Evidence and Implications for Germany,"
IZA Discussion Papers
357, Institute for the Study of Labor (IZA).
- Christoph Knoppik & Thomas Beissinger, 2003. "How Rigid are Nominal Wages? Evidence and Implications for Germany," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(4), pages 619-641, December.
- Pesaran, M.H. & Smith, R., 1992.
"Estimating Long-Run Relationships From Dynamic Heterogeneous Panels,"
Cambridge Working Papers in Economics
9215, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
- Torben M. Andersen, 2003. "Wage formation and European integration," European Economy - Economic Papers 2008 - 2015 188, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Bob HanckÈ & David Soskice, 2003. "Wage-Setting and Inflation Targets in EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 149-160.
- Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001.
"European Inflation Dynamics,"
NBER Working Papers
8218, National Bureau of Economic Research, Inc.
- Jordi Galí & Mark Gertler, 1998.
"Inflation dynamics: A structural econometric analysis,"
Economics Working Papers
341, Department of Economics and Business, Universitat Pompeu Fabra.
- Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
- Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
- Olivier Blanchard, 2006.
"European unemployment: the evolution of facts and ideas,"
CEPR;CES;MSH, vol. 21(45), pages 5-59, 01.
- Olivier Blanchard, 2005. "European Unemployment: The Evolution of Facts and Ideas," NBER Working Papers 11750, National Bureau of Economic Research, Inc.
- Pierre Cahuc & Stéphane Carcillo & André Zylberberg, 2014.
Sciences Po publications
info:hdl:2441/1oclgdahv98, Sciences Po.
- Pierre Cahuc & Stéphane Carcillo & André Zylberberg, 2014. "Labor Economics," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01076752, HAL.
- Karl Whelan, 2000.
"Real wage dynamics and the Phillips curve,"
Finance and Economics Discussion Series
2000-02, Board of Governors of the Federal Reserve System (U.S.).
- Dave Turner & Elena Seghezza, 1999. "Testing for a Common OECD Phillips Curve," OECD Economics Department Working Papers 219, OECD Publishing.
- Ball, L. & Mankiw, N.G., 1992.
"Asymmetric Price Adjustment and Economic Fluctuations,"
Harvard Institute of Economic Research Working Papers
1602, Harvard - Institute of Economic Research.
- Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-61, March.
- Laurence Ball & N. Gregory Mankiw, 1992. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
- Robert Marshall & Antonio Merlo, 1996.
220, Federal Reserve Bank of Minneapolis.
- Aizenman, Joshua & Frenkel, Jacob A., 1988.
"Sectorial wages and the real exchange rate,"
Journal of International Economics,
Elsevier, vol. 24(1-2), pages 69-91, February.
- repec:nbr:nberre:0126 is not listed on IDEAS
- Olivier Blanchard, 1998.
"Revisiting European Unemployment: Unemployment, Capital Accumulation, and Factor Prices,"
NBER Working Papers
6566, National Bureau of Economic Research, Inc.
- Blanchard, Olivier, 1998. "Revisiting European Unemployment : Unemployment, Capital Accumulation and Factor Prices," Research Series, Economic and Social Research Institute (ESRI), number GLS28.
- Cécile Denis & Daniel Grenouilleau & Kieran Mc Morrow & Werner Röger, 2006. "Calculating potential growth rates and output gaps - A revised production function approach," European Economy - Economic Papers 2008 - 2015 247, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Coenen, Günter, 2003. "Downward nominal wage rigidity and the long-run Philips Curve: simulation-based evidence for the euro area," Working Paper Series 0270, European Central Bank.
- Allsopp, Christopher & Vines, David, 1998. "The Assessment: Macroeconomic Policy after EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 1-23, Autumn.
- Thomas Beissinger & Chritoph Knoppik, 2005.
"Sind Nominallöhne starr? Neuere Evidenz und wirtschaftspolitische Implikationen,"
Perspektiven der Wirtschaftspolitik,
Verein für Socialpolitik, vol. 6(2), pages 171-188, 05.
- Beissinger, Thomas & Knoppik, Christoph, 2003. "Sind Nominallöhne starr? Neuere Evidenz und wirtschaftspolitische Implikationen," IZA Discussion Papers 800, Institute for the Study of Labor (IZA).
- Pu Chen & Peter Flaschel, 2005. "Keynesian Dynamics and the Wage–Price Spiral: Identifying Downward Rigidities," Computational Economics, Society for Computational Economics, vol. 25(1), pages 115-142, February.
- Filippo Altissimo & Pierpaolo Benigno & Diego Palenzuela, 2011. "Inflation Differentials in a Currency Area: Facts, Explanations and Policy," Open Economies Review, Springer, vol. 22(2), pages 189-233, April.
- Pu Chen & Carl Chiarella & Peter Flaschel & Willi Semmler, 2005. "Keynesian Dynamics and the Wage-Price Spiral: Analyzing and Estimating a Baseline Disequilibrium Model," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 6 - 49, August.
- Andersen, Torben M, 2004. "Heterogenous Wage Formation Under A Common Monetary Policy," CEPR Discussion Papers 4430, C.E.P.R. Discussion Papers.
- Orietta Dessy, 2002. "Nominal wage rigidity in the European Countries: evidence from the Europanel," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D2-1, International Conferences on Panel Data.
- Holden, Steinar & Wulfsberg, Fredrik, 2004.
"Downward Nominal Wage Rigidity in Europe,"
08/2004, Oslo University, Department of Economics.
- Taylor, John B, 1980.
"Aggregate Dynamics and Staggered Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 88(1), pages 1-23, February.
- Manzini, Paola & Snower, Dennis J., 2002. "Wage Determination and the Sources of Bargaining Power," IZA Discussion Papers 535, Institute for the Study of Labor (IZA).
- Eldar Shafir & Peter Diamond & Amos Tversky, 1997. "Money Illusion," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 341-374.
- Olivier Jean Blanchard & Lawrence Katz, 1999.
"Wage Dynamics: Reconciling Theory and Evidence,"
NBER Working Papers
6924, National Bureau of Economic Research, Inc.
- Nicoletta Batini & Brian Jackson & Stephen Nickell, 2000. "Inflation Dynamics and the Labour Share in the UK," Discussion Papers 02, Monetary Policy Committee Unit, Bank of England.
- Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
- Baltagi, Badi H. & Li, Qi, 1995. "Testing AR(1) against MA(1) disturbances in an error component model," Journal of Econometrics, Elsevier, vol. 68(1), pages 133-151, July.
- Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0281. 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: (ECFIN INFO)
If references are entirely missing, you can add them using this form.