Labour market conditions and wage inflation in CEE economies

Simone Auer

No 460, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper, we test whether a wage Phillips curve can still be considered a reliable approximation of nominal wage determination in Poland, Hungary and the Czech Republic. The empirical evidence is broadly in favour of the existence of a negative relation between labour market slack and nominal wage inflation in the Central and Eastern European (CEE) economies between 2001 and 2017. However, after 2009 wage inflation was significantly below the value that would have been predicted by an estimated wage Phillips curve. The results of rolling OLS estimations confirm a weakening of the negative relation with the unemployment gap. A closer look at the recent evolution of labour market conditions in Poland, Hungary and the Czech Republic suggests that the composition effects on labour supply, especially those linked to demographic and migration trends, could be particularly relevant. Other possible explanations generally mentioned with reference to advanced economies - such as a large share of long-term unemployment, part-time and temporary workers or workers that are underemployed or marginally attached to the labour market - probably had no role or only a marginal one in the recent weak nominal wage growth in the three countries.

Keywords: wage growth; Phillips curve; unemployment; labour supply (search for similar items in EconPapers)
JEL-codes: E24 E31 J21 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-eec, nep-mac and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_460_18

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