Wage Growth in the Euro Area: Where Do We Stand?

21 Pages Posted: 9 Feb 2018

Date Written: December 28, 2017

Abstract

One of the key questions about the current economic recovery in the euro area is why the decline in unemployment recorded since the second half of 2013 has been accompanied by subdued growth in nominal wages. In this paper we adopt a Phillips curve framework to assess whether alternative indicators of labour market slack can explain the current modest wage dynamics in the euro area and in its five largest economies. Our results suggest that the intensive margin of labour utilization plays a relevant role in wage growth: our estimates indicate that the shape of the Phillips curve becomes flatter for lower levels of hours per worker, implying that wage growth is less responsive to unemployment. Looking ahead, a significant recovery in the intensive margin appears key to achieve a robust increase in nominal wage growth.

Keywords: Wage Growth, Phillips Curve, Intensive Margin

JEL Classification: E24, E31, J21

Suggested Citation

Bulligan, Guido and Guglielminetti, Elisa and Viviano, Eliana, Wage Growth in the Euro Area: Where Do We Stand? (December 28, 2017). Bank of Italy Occasional Paper No. 413, Available at SSRN: https://ssrn.com/abstract=3121142 or http://dx.doi.org/10.2139/ssrn.3121142

Guido Bulligan

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Elisa Guglielminetti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Eliana Viviano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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