Differences in wage determination in the Eurozone

Mariam Camarero, Gaetano D’Adamo and Cecilio Tamarit
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Gaetano D’Adamo: University of Valencia, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, Spain
Authors registered in the RePEc Author Service: Gaetano D'Adamo ()

No 1811, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper estimates a simple equilibrium wage equation for a subset of Eurozone countries over the period 1995-2015 using panel cointegration methods that account for cross-country heterogeneity and allow for structural breaks. Results show that the equilibrium wage has been affected by a structural change contemporaneous to the international financial crisis. Moreover, it has different determinants across euro area countries, among which two relatively distinct groups can be identified. In particular, the wage equation in Germany, Austria, Belgium, the Netherlands and Finland is more homogeneous and seem to respond more to macroeconomic conditions than in the group composed of Italy, Spain, Portugal, France and Ireland. This result is highly policy relevant in the context of a single monetary policy, as it may explain the diverging behavior of wages across the Eurozone and also be a potential source of asymmetric shocks and/or asymmetric response to a common shock.

Keywords: panel cointegration; wage setting; labor market; productivity; real exchange rate (search for similar items in EconPapers)
JEL-codes: C23 E24 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
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