IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2019-156.html
   My bibliography  Save this paper

European Wage Dynamics and Spillovers

Author

Listed:
  • Ms. Yuanyan S Zhang

Abstract

Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.

Suggested Citation

  • Ms. Yuanyan S Zhang, 2019. "European Wage Dynamics and Spillovers," IMF Working Papers 2019/156, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/156
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=46986
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    2. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    3. Guido Bulligan & Elisa Guglielminetti & Eliana Viviano, 2017. "Wage growth in the euro area: where do we stand?," Questioni di Economia e Finanza (Occasional Papers) 413, Bank of Italy, Economic Research and International Relations Area.
    4. David N.F. Bell & David G. Blanchflower, 2018. "Underemployment in the US and Europe," NBER Working Papers 24927, National Bureau of Economic Research, Inc.
    5. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
    6. John C Bluedorn & Shekhar Aiyar & Romain A Duval & Davide Furceri & Daniel Garcia-Macia & Yi Ji & Davide Malacrino & Haonan Qu & Jesse Siminitz & Aleksandra Zdzienicka, 2019. "Strengthening the Euro Area; The Role of National Structural Reforms in Building Resilience," IMF Staff Discussion Notes 19/05, International Monetary Fund.
    7. Mr. Yasser Abdih & Ms. Li Lin & Anne-Charlotte Paret, 2018. "Understanding Euro Area Inflation Dynamics: Why So Low for So Long?," IMF Working Papers 2018/188, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ramskogler, Paul, 2021. "Labour market hierarchies and the macro-economy – Do labour market dualities affect wage growth in Europe?," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 154-165.
    2. Lehner, Lukas & Ramskogler, Paul & Riedl, Aleksandra, 2022. "Begging thy coworker – Labor market dualization and the slow-down of wage growth in Europe," INET Oxford Working Papers 2022-04, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    3. Sabine Klinger & Anvar Musayev & Jean-Marc Natal & Enzo Weber, 2019. "Immigration and Wage Dynamics in Germany," IMF Working Papers 2019/301, International Monetary Fund.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Katharina Längle, 2020. "Offshoring: What Consequences for Workers? Evidence from Global Value Chains," Documents de travail du Centre d'Economie de la Sorbonne 20005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Ann Harrison & John McLaren & Margaret S. McMillan, 2010. "Recent Findings on Trade and Inequality," NBER Working Papers 16425, National Bureau of Economic Research, Inc.
    3. Richard Baldwin, 2013. "Trade and Industrialization after Globalization's Second Unbundling: How Building and Joining a Supply Chain Are Different and Why It Matters," NBER Chapters, in: Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, pages 165-212, National Bureau of Economic Research, Inc.
    4. Stark, Oded & Kosiorowski, Grzegorz, 2020. "An Adverse Social Welfare Effect of Quadruply Gainful Trade," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 24(3), pages 207-235, September.
    5. Eckel, Carsten & Irlacher, Michael, 2017. "Multi-product offshoring," European Economic Review, Elsevier, vol. 94(C), pages 71-89.
    6. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    7. Nicola Gagliardi & Benoît Mahy & François Rycx, 2020. "Trade, GVCs, and wage inequality: Theoretical and empirical insights," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 115-134.
    8. Byrne, David & Zekaite, Zivile, 2020. "Non-linearity in the wage Phillips curve: Euro area analysis," Economics Letters, Elsevier, vol. 186(C).
    9. David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 205-240, October.
    10. Hrushikesh Mallick & Mantu Kumar Mahalik & Hemachandra Padhan, 2020. "Does globalization exacerbate income inequality in two largest emerging economies? The role of FDI and remittances inflows," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(4), pages 443-480, December.
    11. Antonio Rodriguez-Lopez & Miaojie Yu, 2017. "All-Around Trade Liberalization and Firm-Level Employment: Theory and Evidence from China," CESifo Working Paper Series 6710, CESifo.
    12. Zouheir El-Sahli & Joakim Gullstrand & Karin Olofsdotter, 2022. "The external effects of offshoring on job security in SMEs," Small Business Economics, Springer, vol. 59(4), pages 1613-1640, December.
    13. Tomasz Serwach, 2022. "The European Union and within-country income inequalities. The case of the New Member States," Working Papers hal-03548416, HAL.
    14. Baumgarten, Daniel & Irlacher, Michael & Koch, Michael, 2020. "Offshoring and non-monotonic employment effects across industries in general equilibrium," European Economic Review, Elsevier, vol. 130(C).
    15. Ann Harrison & John McLaren & Margaret McMillan, 2011. "Recent Perspectives on Trade and Inequality," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 261-289, September.
    16. Ioannis Bournakis & Michela Vecchi & Francesco Venturini, 2018. "Off‐Shoring, Specialization and R&D," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(1), pages 26-51, March.
    17. Katharina Längle, 2020. "Offshoring: What Consequences for Workers? Evidence from Global Value Chains," Working Papers hal-02548691, HAL.
    18. Matilde Cardoso & Pedro Cunha Neves & Oscar Afonso & Elena Sochirca, 2021. "The effects of offshoring on wages: a meta-analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 149-179, February.
    19. Wanida Ngienthi, 2013. "Offshoring Prompts High Quality Labour Markets," Pacific Economic Review, Wiley Blackwell, vol. 18(5), pages 628-643, December.
    20. Dirk Bursian & Arne J. Nagengast, 2020. "Offshoring And The Polarization Of The Demand For Capital," Economic Inquiry, Western Economic Association International, vol. 58(1), pages 260-282, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2019/156. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.