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Sectoral Wage Rigidities and Labour and Product Market Institutions in the Euro Area

Author

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  • Robert Anderton
  • Arno Hantzsche
  • Simon Savsek
  • Mate Toth

Abstract

We estimate wage Phillips curve relationships between sectoral wage growth, unemployment and productivity in a country-industry panel of euro area countries. We find that institutional rigidities – such as labour and product market institutions and regulations – limit the adjustment of euro area wages to unemployment, in both upturns and downturns, particularly in manufacturing and, to a lesser extent, in the construction and service sectors. In addition, there are also further limitations in the response of wages to changes in unemployment during economic downturns which suggests that euro area wages are also characterised by significant downward wage rigidities, especially in the manufacturing sector. These results are robust to specifications that account for factors that may affect structural unemployment (such as duration-dependent unemployment effects), as well as changes in the skill composition of employment that may affect the evolution of aggregate wages. The results also hold for panels including or excluding the public sector (where wages may be determined differently to the private sector also due to the effects of fiscal consolidation on public sectorwages during the crisis). From a policy perspective, reforms in product and labour markets which reduce wage rigidities can facilitate employment growth and enhance the rebalancing process in the euro area.

Suggested Citation

  • Robert Anderton & Arno Hantzsche & Simon Savsek & Mate Toth, 2016. "Sectoral Wage Rigidities and Labour and Product Market Institutions in the Euro Area," Discussion Papers 2016/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  • Handle: RePEc:not:notcfc:16/01
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    References listed on IDEAS

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    Cited by:

    1. Izquierdo, Mario & Jimeno, Juan & Kosma, Theodora & Lamo, Ana & Millard, Stephen & Room, Tairi & Viviano, Eliana, 2017. "Labour market adjustment in Europe during the crisis: microeconomic evidence from the Wage Dynamics Network survey," Bank of England working papers 661, Bank of England.
    2. Petra Marotzke & Robert Anderton & Ana Bairrao & Clémence Berson & Peter Tóth, 2016. "Wage adjustment and employment in Europe," Discussion Papers 2016-19, University of Nottingham, GEP.

    More about this item

    Keywords

    sector wages; wage rigidity; wage Phillips curve; labour market institutions; product market institutions;

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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