Nominal and real wage flexibility in EMU

Abstract

E24, J30, J50,

How flexible are real wages in EU countries? A panel investigation

“…the degree to which they react to output) and the level of employment, which would in turn suggest a negative link between their cyclicality and the unemployment level. Arpaia and Pichelmann (2007) also document asymmetric response of wages in upswing and downturn.…”

“…Arpaia andPichelmann, 2007, Babetskii 2006, etc.). However, the literature is often inconclusive about the nature of the factors behind country heterogeneity and the magnitude of their impact.…”

“…Arpaia and Pichelmann, 2007). The regressions include country fixed effects to capture unobserved cross-country heterogeneity.…”

“…Messina et al (2009) report a significant negative link between the extent of DRWR and the cyclicality of wages, defined as the response of wages to macroeconomic shocks. Arpaia and Pichelmann (2007) investigate the wage response in individual countries and find evidence not only that their wage measure adjusts more when output is above potential, but also that cross-country heterogeneity is substantially higher in the down phase of the cycle.…”

“…In our paper poolability is tested by applying the Roy-Zellner-Baltagi (RZB) test (Baltagi, 2008), in combination with the modified critical values reported by Bun (2004) 12 . All tests are performed with respect to several groups of variables similarly to Arpaia and Pichelmann (2007): for unemployment only, productivity only; unemployment and productivity jointly and then jointly for all exogenous slopes, without the intercepts (see Table 4). In the baseline specification (Specification 3.1 in Table 3), although poolability is not rejected by the less restrictive threshold value for dynamic panels with non-spherical disturbances, it is rejected by the stricter version which also takes into account serial correlation.…”