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Downward Wage Rigidities in the Euro Area

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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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    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. Vladimir Mihajlović & Gordana Marjanović, 2020. "Asymmetries in effects of domestic inflation drivers in the Baltic States: a Phillips curve-based nonlinear ARDL approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 20(1), pages 94-116.
    4. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.
    5. Marotzke Petra & Anderton Robert & Bairrao Ana & Berson Clémence & Tóth Peter, 2020. "Asymmetric wage adjustment and employment in European firms," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-25, June.
    6. 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.
    7. Schilirò, Daniele, 2017. "Imbalances and policies in the Eurozone," MPRA Paper 82847, University Library of Munich, Germany.
    8. 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.
    9. 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.
    10. Morin, Annaïg, 2017. "Cyclicality of wages and union power," Labour Economics, Elsevier, vol. 48(C), pages 1-22.

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