Real Wages and Local Unemployment in the Euro Area

33 Pages Posted: 27 May 2005

See all articles by Anna Sanz-de-Galdeano

Anna Sanz-de-Galdeano

Universitat Autònoma de Barcelona; IZA Institute of Labor Economics

Jarkko Turunen

International Monetary Fund

Date Written: April 2005

Abstract

We present empirical evidence of the extent of wage rigidity in the euro area and European countries derived from longitudinal data on individuals. Wage rigidity is measured by the elasticity of individual real wages with respect to local unemployment. The results suggest that the elasticity is indeed negative, i.e. that real wages are lower in local labour markets with higher unemployment. The size of the elasticity for the euro area is similar to that found in previous studies for a number of countries, including the United States. Furthermore, there is some variation in the unemployment elasticity by worker groups and along the wage distribution. In particular, public sector wages are relatively rigid compared to wages in the private sector, contributing significantly to wage rigidity in the euro area. Country results show some heterogeneity in wage rigidity across European countries and suggest a tentative ranking of countries.

Keywords: real wages, local unemployment, wage curve, panel data

JEL Classification: E24, J45, J64

Suggested Citation

Sanz De Galdeano, Anna and Turunen, Jarkko, Real Wages and Local Unemployment in the Euro Area (April 2005). ECB Working Paper No. 471. Available at SSRN: https://ssrn.com/abstract=701266

Anna Sanz De Galdeano (Contact Author)

Universitat Autònoma de Barcelona ( email )

Edifici B - Campus Bellaterra
Barcelona, 08193
Spain

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jarkko Turunen

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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