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ON WAGE FORMATION, WAGE DEVELOPMENT AND FLEXIBILITY: A comparison between European countries and the United States

Marga Peeters () and Ard Reijer ()

Applied Econometrics and International Development, 2008, vol. 8, issue 1, 59-74

Abstract: We derive a non-linear wage equation from a wage bargaining model and estimate an error correction model for Germany, Spain, France, the Netherlands and the US. Based on the estimated parameters, we derive time-varying elasticities of wages with respect to its determinants labour productivity, prices, taxes, unemployment and the replacement rate. Moreover, we quantify the contribution of each determinant to the wage increase. The dominant role of prices in the wage formation in the seventies and eighties was taken over by labour productivity for the US and unemployment in Spain and the Netherlands at the end of the nineties.

Keywords: wage formation; labour market flexibility. (search for similar items in EconPapers)
JEL-codes: C22 E24 J30 (search for similar items in EconPapers)
Date: 2008
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