Real Wage Flexibility in the European Union: New Evidence from the Labour Cost Data

Jan Babecký and Kamil Dybczak

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper presents evidence on the extent of real wage flexibility in 24 EU member countries based on the Eurostat labour cost data covering 2000Q1-2010Q2. The term 'wages' refers, for brevity, to total hourly labour costs and their two main components, namely wages and salaries per hour, and non-wage costs. Following the structural VAR approach, real wage flexibility is measured as the responsiveness of real wages to real (permanent) versus nominal (temporary) shocks. The data shows that the impact of the 2008/2009 crisis on real wage adjustment has not been uniform across the sample countries, with some evidence for an increase in real wage rigidity. A strong negative correlation is observed between our aggregate measure of wage flexibility and both the ESCB Wage Dynamics Network firm-level survey estimates of downward real wage rigidity and the International Wage Flexibility Project microeconomic estimates of downward real wage rigidity. Finally, we find that institutional features of labour markets could help explain the variation in the results across countries; for example, stricter employment protection legislation and stronger presence of unions go hand in hand with higher real wage rigidity.

Keywords: Labour cost indices; real wage rigidity; structural VAR. (search for similar items in EconPapers)
JEL-codes: C22 E24 F02 J30 P20 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-eur, nep-hme, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2012/01

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