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Real Wage Flexibility in the Enlarged Eu: Evidence From a Structural Var

Author

Listed:
  • Jan Babecký

    (Czech National Bank, jan.babecky@cnb.cz)

  • Kamil Dybczak

    (European Commission, kamil.dybczak@ec.europa.eu)

Abstract

Membership in the monetary union imposes higher demands on factor market flexibility, since neither the exchange rate nor monetary policies can be used to deal with country-specific shocks. In this paper we assess the ability of the twelve new EU member states (NMS-12) to dampen the impact of shocks by means of macroeconomic wage flexibility. Following the structural VAR approach elaborated in Moore and Pentecost (2006), real wage flexibility is measured by the responsiveness of real wages to real (permanent) and nominal (temporary) shocks. The analysis of Moore and Pentecost (2006) is extended in three ways: by employing a new Eurostat labour cost data set covering 1996Q1 to 2007Q3, by using a large sample of 24 EU member countries, and by assessing the sensitivity of the results to the sample length. We find evidence of heterogeneous real wage adjustment across the new as well as the mature EU economies. Overall, the degree of real wage flexibility in the NMS-12 lies within the bounds of the corresponding values for the Euro Area `core' and `peripheral' member countries.

Suggested Citation

  • Jan Babecký & Kamil Dybczak, 2008. "Real Wage Flexibility in the Enlarged Eu: Evidence From a Structural Var," National Institute Economic Review, National Institute of Economic and Social Research, vol. 204(1), pages 126-138, April.
    • Handle: RePEc:sae:niesru:v:204:y:2008:i:1:p:126-138
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    Cited by:

    1. repec:cnb:ocpubv:rb08/2 is not listed on IDEAS
    2. repec:cnb:ocpubv:rb07/1 is not listed on IDEAS
    3. repec:cnb:ocpubv:rb07/2 is not listed on IDEAS
    4. 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.
    5. repec:cnb:ocpubv:rb06/2 is not listed on IDEAS
    6. Maczulskij, Terhi, 2013. "Public–private sector wage differentials and the business cycle," Economic Systems, Elsevier, vol. 37(2), pages 284-301.
    7. repec:cnb:ocpubv:rb09/1 is not listed on IDEAS
    8. Jan Babecky & Kamil Dybczak & Kamil Galuscak, 2008. "Survey on Wage and Price Formation of Czech Firms," Working Papers 2008/12, Czech National Bank.

    More about this item

    Keywords

    Wage flexibility; structural VAR JEL Classifications: E24; C22; F02; J30; P20;
    All these keywords.

    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
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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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