Understanding Low Wage Growth in the Euro Area and European Countries

Investigating the Inflation–Output Nexus for the Euro Area: Old Questions and New Results

“…Popular examples include, for instance, asymmetries in the behaviour of wages and prices. For instance, Nickel et al (2019) find that the weakness in wage growth can be mostly explained by cyclical drivers (captured by standard Phillips curve specifications), but also other factors (for instance, compositional effects, possible non-linear reactions of wage growth to cyclical improvements, and structural and institutional factors seem to play a role). Furthermore, Passamani et al (2022) propose a newly specified Phillips curve model, in which expected inflation, instead of being treated as an exogenous explanatory variable of actual inflation, is endogenized.…”

Help wanted: the drivers and implications of labour shortages

“…The second part of our study can be related to the existing literature on the wage Phillips curve (e.g. Gali (2011) or for a broader overview Nickel et al (2020)). Most of the literature is using macrolevel data with tightness indicators most often being either the unemployment rate (Phillips, 1958) or a version of the unemployment gap (Gordon, 1997).…”

“…However, several papers (e.g. Nickel et al, 2020) have found that the backward looking or current time component of inflation is relatively more important for wage formation. Also aside of the Phillips curve framework, using the past year's or current inflation to proxy inflation expectations has become a common approach (e.g.…”

“…Hence, we control for a broad set of firm characteristics like firm size, sales expectations (both in categories), firm age, lagged wages and lagged employment. In the wage regressions, we also control for labour productivity growth (in line with recent augmented Phillips curve equations, see Nickel et al (2020)). Moreover, we include country, sector and year fixed effects to control for various sources of unobserved heterogeneity.…”

Challenges for global monetary policy in an environment of high inflation: the case of the euro area

“…-1 large European companies indicates that compensation for inflation has become an important factor in wage agreements and wage pressures for 2023 continued to build and were increasingly expected becoming an additional cost concern for many firms (De Bondt et al, 2022). While some picking-up of wage growth needs to be seen also against the background of an extended period of low wage growth before the pandemic (see Nickel et al, 2019), the risk that very high wage increases would further fuel inflation (in the form of the so-called second round effects) and lead to a wage-price spiral in the medium term is a matter of concern for the ECB and needs to be monitored very closely (Boissay et al, 2022;Battistini, Grapow et al, 2022).…”