On wage formation, wage flexibility and wage coordination: A focus on the wage impact of productivity in Germany, Greece, Ireland, Portugal, Spain and the United States

Marga Peeters and Ard Reijer ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper discusses the endeavours of policy makers to come to some degree of wage coordination among EU countries, aiming at aligning wage growth with labour productivity growth at the national levels. In this context, we analyse the wage and productivity developments in Germany, the European Union’s periphery countries Greece, Ireland, Portugal, and Spain along with the US for the period 1980-2010. Apart from the contribution of productivity to wages, we take into account the contributions of prices, unemployment, replacement rates and taxes by means of an econometrically estimated non-linear wage equation resulting from a wage bargaining model. We further study the downward rigidities of wages in depth. The findings show that in past times of low productivity, price inflation and reductions in unemployment put significant upward pressure on wage growth, also in the low inflationary period of the 2000s. Greece, Ireland, Portugal and Spain are far from aligning wage growth with productivity growth. German productivity is a major German wage determinant, but surely not the only one. To steer wages, policy makers can effectively use the replacement rate.

Keywords: wages; compensation per employee; unit labour costs; productivity; wage formation; wage coordination; labour market; wage flexibility; unemployment; prices; replacement rate; monetary union (search for similar items in EconPapers)
JEL-codes: C22 E24 E5 E6 J3 (search for similar items in EconPapers)
Date: 2011-06-29
New Economics Papers: this item is included in nep-eec, nep-eur, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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