Wage-Price Setting in New EU Member States
26 Pages Posted: 18 Dec 2008
Date Written: October 2008
This paper analyzes wage- and price-setting relations in new EU member countries. Panel estimates indicate a strong and significant relationship between real wages and labor productivity, as well as evidence of wage pass-through to inflation. Terms of trade shocks do not feed through to real wages. Country-specific wage developments, beyond differences in labor productivity growth, are mostly explained by real wage catch-up from different initial levels and different labor market conditions. Qualitative evidence also suggests that public sector wage demonstration effects and institutional factors may play a role in wage determination.
Keywords: Wage policy, Pricing policy, European Union, Europe, Public sector wages, Labor markets, Labor productivity, External shocks, Inflation
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