Impact of Wage Increase and Estimation of Phillips’ Curve in Czech Republic

Abstract

The paper deals with the influence of wage growth on selected economic indicators in the condition of the Czech Republic. The estimate of the Phillips' curve in the conditions of the Czech Republic is constructed as a first step of the analysis, both for the original version, including the link between the change in wages and the unemployment rate, and in a modified form, examining the relationship between inflation and unemployment. The analyzed data show that the relationship between inflation and unemployment rate for the Czech Republic in the period 2005 to 2021 is not such significant (R 2 = 0.245), however, there is a stronger link between wage change and unemployment rate (R 2 = 0.495). Furthermore, the link between wage growth and consumption of households is examined, as it is referred to as a factor accelerating inflation rate. The data suggest that changes in consumption of households can be explained by 42.7% through wage changes. Thus, the results suggest that wage growth in the conditions of the Czech Republic was related to the low unemployment rate and is partly reflected in the growth of consumption of households, but the link to the accelerating inflation rate is missing.