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Real Wage Flexibility in the European Union: New Evidence from the Labour Cost Data

Author

Listed:
  • Jan Babecky
  • Kamil Dybczak
Abstract
This paper presents evidence on the extent of real wage flexibility in 24 EU member countries based on the Eurostat labour cost data covering 2000Q1-2010Q2. The term 'wages' refers, for brevity, to total hourly labour costs and their two main components, namely wages and salaries per hour, and non-wage costs. Following the structural VAR approach, real wage flexibility is measured as the responsiveness of real wages to real (permanent) versus nominal (temporary) shocks. The data shows that the impact of the 2008/2009 crisis on real wage adjustment has not been uniform across the sample countries, with some evidence for an increase in real wage rigidity. A strong negative correlation is observed between our aggregate measure of wage flexibility and both the ESCB Wage Dynamics Network firm-level survey estimates of downward real wage rigidity and the International Wage Flexibility Project microeconomic estimates of downward real wage rigidity. Finally, we find that institutional features of labour markets could help explain the variation in the results across countries; for example, stricter employment protection legislation and stronger presence of unions go hand in hand with higher real wage rigidity.

Suggested Citation

  • Jan Babecky & Kamil Dybczak, 2012. "Real Wage Flexibility in the European Union: New Evidence from the Labour Cost Data," Working Papers 2012/01, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2012/01
    as

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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2012_01.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Piotr Lewandowski & Marek Antosiewicz & Jan Baran & Iga Magda & Monika Potoczna & Maciej Lis & Joanna Tyrowicz & Agnieszka Kaminska & Jan Hagemejer & Karol Pogorzelski, 2013. "Employment in Poland 2012. Labour Market During the Recovery from the Crisis," Books and Reports published by IBS, Instytut Badan Strukturalnych, number zwp2012 edited by Piotr Lewandowski & Iga Magda, january.
    2. repec:cnb:ocpubv:as14 is not listed on IDEAS
    3. Lucia Dalla Pellegrina & Margherita Saraceno, 2017. "Posting of workers across the EU: an empirical investigation," European Journal of Law and Economics, Springer, vol. 44(3), pages 423-451, December.
    4. repec:cnb:ocpubv:as13 is not listed on IDEAS
    5. Gurvich, E. & Vakulenko, E., 2018. "Studies of Russian Labor Market and Economic Policy," Journal of the New Economic Association, New Economic Association, vol. 37(1), pages 203-212.

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    More about this item

    Keywords

    Labour cost indices; real wage rigidity; structural VAR.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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