Understanding Low Wage Growth in the Euro Area and European Countries

89 Pages Posted: 3 Sep 2019

See all articles by Christiane Nickel

Christiane Nickel

European Central Bank (ECB)

Elena Bobeica

European Central Bank (ECB)

Gerrit Koester

European Central Bank (ECB)

Eliza Lis

European Central Bank (ECB)

Mario Porqueddu

European Central Bank (ECB)

Date Written: September, 2019

Abstract

Despite notable improvements in the labour market since 2013, wage growth in the euro area was subdued and substantially overpredicted in 2013-17. This paper summarises the findings of an ESCB expert group on the reasons for low wage growth and provides comparable analyses on wage developments in the euro area as a whole and in individual EU countries. The paper finds that cyclical drivers, as captured by a standard Phillips curve, seem to explain much of the weakness in wage growth during this period, but not all of it. Going beyond the drivers included in standard Phillips curves, other factors are also found to have played a role, such as compositional effects, the possible non-linear reaction of wage growth to cyclical improvements, and structural and institutional factors. In order to increase the robustness of wage forecasts, the paper also proposes ready-to-use tools for cross-checking euro area wage growth forecasts based on wage Phillips curves. These are derived based on a comprehensive real-time forecast evaluation exercise

Keywords: business cycles, forecasting, structural factors, wages

JEL Classification: J30, E24, E31, E32

Suggested Citation

Nickel, Christiane and Bobeica, Elena and Koester, Gerrit B. and Lis, Eliza and Porqueddu, Mario, Understanding Low Wage Growth in the Euro Area and European Countries (September, 2019). ECB Occasional Paper No. 232, Available at SSRN: https://ssrn.com/abstract=3447190

Christiane Nickel (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Elena Bobeica

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Gerrit B. Koester

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Eliza Lis

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mario Porqueddu

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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