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European Wage Dynamics and Spillovers
by Yuanyan Sophia Zhang

Series:Working Paper No. 19/156
ISBN 9781498319294
Code: #WPIEA2019156

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
29 pages
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Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.
European Wage Dynamics and Spillovers
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 125582 Added: 2019.8.2