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Has the wage Phillips curve changed in the euro area?

Author

Listed:
  • Guido BUlligan

    (Banca d'Italia)

  • Eliana Viviano

    (Banca d'Italia)

Abstract

Increasing evidence shows that after a flattening occurred in the immediate aftermath of the global financial crisis, the relationship between price inflation and economic slack became stronger in the euro area. By contrast, there is no clear evidence of a strong(er) relationship between wage inflation and unemployment. In this paper we estimate a standard Phillips curve with time-varying coefficients separately for Italy, Spain, Germany and France. We find that, with the exception of Germany, after the global financial crisis the sensitivity of hourly wage changes to labour market slack increased. Second, using administrative microdata available only for Italy, we relate daily wage changes to the local unemployment rate. The results confirm the steepening of the Phillips curve after 2008, also when controlling for composition effects.

Suggested Citation

  • Guido BUlligan & Eliana Viviano, 2016. "Has the wage Phillips curve changed in the euro area?," Questioni di Economia e Finanza (Occasional Papers) 355, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_355_16
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    More about this item

    Keywords

    wage growth; Phillips curve; parameter instability JEL Classification: E24; E31; E58;
    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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