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Downward Wage Rigidities in the Euro Area

Author

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  • Robert Anderton
  • Boele Bonthuis

Abstract

This paper estimates wage equations to test for changes in the responsiveness of wages to unemployment using panel estimates which pool the data across the euro area countries. More specifically, we investigate whether the sensitivity of euro area wages to movements in unemployment is different during downturns (i.e., downward wage rigidity), whether it has changed during the crisis and which institutional features might be driving the results. We find evidence of a lower responsiveness of wages to unemployment during downturns, consistent with the stylised facts that euro area wages are rigid downwards. We also find that the degree of downward wage rigidity has declined as the crisis became more prolonged. Overall, it seems that much of the downward wage rigidity reflects institutional factors, such as a high degree of union coverage and employment protection. Additionally, a rising share of the long-term unemployed lowers the responsiveness of wages to unemployment while a rising share of temporary labour seems to dampen wage growth.

Suggested Citation

  • Robert Anderton & Boele Bonthuis, 2015. "Downward Wage Rigidities in the Euro Area," Discussion Papers 2015-09, University of Nottingham, GEP.
  • Handle: RePEc:not:notgep:15/09
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    File URL: https://www.nottingham.ac.uk/gep/documents/papers/2015/2015-09.pdf
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    Cited by:

    1. Mario Izquierdo & Juan Francisco Jimeno & Theodora Kosma & Ana Lamo & Stephen Millard & Tairi Rõõm & Eliana Viviano, 2017. "Labour market adjustment in Europe during the crisis: microeconomic evidence from the Wage Dynamics Network survey," Occasional Papers 1704, Banco de España;Occasional Papers Homepage.
    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.
    3. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.
    4. Schilirò, Daniele, 2017. "Imbalances and policies in the Eurozone," MPRA Paper 82847, University Library of Munich, Germany.
    5. Robert Anderton & Arno Hantzsche & Simon Savsek & Máté Tóth, 2017. "Sectoral Wage Rigidities and Labour and Product Market Institutions in the Euro Area," Open Economies Review, Springer, vol. 28(5), pages 923-965, November.
    6. Guido Bulligan & Eliana Viviano, 2017. "Has the wage Phillips curve changed in the euro area?," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-22, December.
    7. Morin, Annaïg, 2017. "Cyclicality of wages and union power," Labour Economics, Elsevier, vol. 48(C), pages 1-22.

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