Modelling Downward and Upward Wage Flexibility at the Macroeconomic Level
26 Pages Posted: 2 May 2013
Date Written: April 9, 2013
In this paper, we analyze wage sensitivity to labour market disequilibrium at a macroeconomic level in several OECD countries. We estimate the Phillips curve and a wage equation with an error correction term à la Sargan with a novel asymmetric approach that allows us to distinguish between downward and upward flexibility. We present evidence that downward wage flexibility is more important than upward flexibility in all the countries. We also show that flexible labor market institutions do not lead to higher downward wage flexibility and lower unemployment. However, higher employment protection.
Keywords: wage flexibility, asymmetries, European Union
JEL Classification: C32, E24, J30
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