IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Nominal and real wage flexibility in EMU

  • Alfonso Arpaia
  • Karl Pichelmann

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ec.europa.eu/economy_finance/publications/publication9587_en.pdf
Download Restriction: no

Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 281.

as
in new window

Length: 33 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:euf:ecopap:0281
Contact details of provider: Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels
Fax: +32 2 298.08.23
Web page: http://ec.europa.eu/economy_finance/index_en.htm
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. 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.
  2. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  3. Torben M. Andersen, 2003. "Wage formation and European integration," European Economy - Economic Papers 188, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  4. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
  5. Holden, Steinar & Wulfsberg, Fredrik, 2004. "Downward Nominal Wage Rigidity in Europe," Memorandum 08/2004, Oslo University, Department of Economics.
  6. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001. "European Inflation Dynamics," NBER Working Papers 8218, National Bureau of Economic Research, Inc.
  7. 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.
  8. Olivier Blanchard, 2006. "European unemployment: the evolution of facts and ideas," Economic Policy, CEPR;CES;MSH, vol. 21(45), pages 5-59, 01.
  9. Shafir, Eldar & Diamond, Peter & Tversky, Amos, 1997. "Money Illusion," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 341-74, May.
  10. Holden, Steinar & Wulfsberg, Fredrik, 2005. "Downward Nominal Wage Rigidity in the OECD," Memorandum 10/2005, Oslo University, Department of Economics.
  11. Robert Marshall & Antonio Merlo, 1996. "Pattern bargaining," Staff Report 220, Federal Reserve Bank of Minneapolis.
    • Robert C. Marshall & Antonio Merlo, 2004. "Pattern Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 239-255, 02.
  12. 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.).
  13. 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.
  14. Blanchard, Olivier, 1998. "Revisiting European Unemployment : Unemployment, Capital Accumulation and Factor Prices," Research Series, Economic and Social Research Institute (ESRI), number GL28.
  15. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  16. 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).
  17. Laurence Ball & N. Gregory Mankiw, 1992. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
  18. 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).
  19. Beissinger, Thomas & Knoppik, Christoph, 2003. "Sind Nominallöhne starr? Neuere Evidenz und wirtschaftspolitische Implikationen," IZA Discussion Papers 800, Institute for the Study of Labor (IZA).
  20. Dave Turner & Elena Seghezza, 1999. "Testing for a Common OECD Phillips Curve," OECD Economics Department Working Papers 219, OECD Publishing.
  21. Steinar Holden, 2002. "The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe," NBER Working Papers 8865, National Bureau of Economic Research, Inc.
  22. Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
  23. Groth, Charlotta & Johansson, Åsa, 2002. "Bargaining Structure and Nominal Wage Flexibility," Seminar Papers 709, Stockholm University, Institute for International Economic Studies.
  24. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
  25. Joshua Aizenman & Jacob A. Frenkel, 1986. "Sectorial Wages and the Real Exchange Rate," NBER Working Papers 1801, National Bureau of Economic Research, Inc.
  26. 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.
  27. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  28. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  29. Andersen, Torben M, 2004. "Heterogenous Wage Formation Under A Common Monetary Policy," CEPR Discussion Papers 4430, C.E.P.R. Discussion Papers.
  30. 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.
  31. 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.
  32. 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.
  33. 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.
  34. 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.
  35. 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.
  36. C�cile Denis & Daniel Grenouilleau & Kieran Mc Morrow & Werner R�ger, 2006. "Calculating potential growth rates and output gaps - A revised production function approach," European Economy - Economic Papers 247, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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 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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.