Has the Wage Phillips Curve Changed in the Euro Area?
38 Pages Posted: 2 Feb 2017
Date Written: September 22, 2016
Abstract
Increasing evidence shows that after a flattening occurred in the immediate aftermath of the global financial crisis, the relationship between price inflation and economic slack became stronger in the euro area. By contrast, there is no clear evidence of a strong(er) relationship between wage inflation and unemployment. In this paper we estimate a standard Phillips curve with time-varying coefficients separately for Italy, Spain, Germany and France. We find that, with the exception of Germany, after the global financial crisis the sensitivity of hourly wage changes to labour market slack increased. Second, using administrative microdata available only for Italy, we relate daily wage changes to the local unemployment rate. The results confirm the steepening of the Phillips curve after 2008, also when controlling for composition effects.
Keywords: wage growth, Phillips curve, parameter instability
JEL Classification: E24, E31, E58
Suggested Citation: Suggested Citation