On Wage Formation, Wage Development and Flexibility: A Comparison between European Countries and the United States

DNB Staff Report No. 18

19 Pages Posted: 12 Mar 2008

See all articles by Marga Peeters

Marga Peeters

De Nederlandsche Bank

Ard den Reijer

Sveriges Riksbank - Monetary Policy

Multiple version iconThere are 2 versions of this paper

Date Written: 2003

Abstract

For Germany, Spain, France, the Netherlands and the US an Error Correction Model with a long-term non-linear wage equation is estimated by 3-SLS to obtain consistent estimates, accounting for endogeneity and common shocks. On the basis of the estimated parameter elasticities of wages with respect to labour productivity, value added and consumer prices, taxes, unemployment and replacement rates are computed along with the wage contributions. The results indicate that the dominant role of prices in the formation of wages in the seventies and eighties was taken over by labour productivity in the US and unemployment in Spain and - almost- in the Netherlands at the end of the nineties. Evidence for a stronger real wage flexibility of the US in comparison with the four European countries is not found.

Keywords: wage flexibility, labour market

JEL Classification: C22, E24, J30

Suggested Citation

Peeters, Marga and den Reijer, Ard, On Wage Formation, Wage Development and Flexibility: A Comparison between European Countries and the United States (2003). DNB Staff Report No. 18, Available at SSRN: https://ssrn.com/abstract=1003917 or http://dx.doi.org/10.2139/ssrn.1003917

Marga Peeters (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Ard den Reijer

Sveriges Riksbank - Monetary Policy ( email )

SE-103 37 Stockholm
Sweden