European Wage Dynamics and Spillovers
European Wage Dynamics and Spillovers

Author: Yuanyan Sophia Zhang

Publisher: International Monetary Fund

Published: 2019-07-19

Total Pages: 29

ISBN-13: 1513508628

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Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.

European Wage Dynamics and Spillovers
European Wage Dynamics and Spillovers

Author: Yuanyan Sophia Zhang

Publisher: International Monetary Fund

Published: 2019-07-19

Total Pages: 29

ISBN-13: 1498319297

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Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.

Immigration and Wage Dynamics in Germany
Immigration and Wage Dynamics in Germany

Author: Sabine Klinger

Publisher: International Monetary Fund

Published: 2019-12-27

Total Pages: 34

ISBN-13: 1513521144

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German wages have not increased very rapidly in the last decade despite strong employment growth and a 5 percentage point decline in the unemployment rate. Our analysis shows that a large part of the decline in unemployment was structural. Micro-founded Phillips curves fit the German data rather well and suggest that relatively low wage growth can be largely attributed to low inflation expectations and low productivity growth. There is no evidence – from either aggregate or micro-level administrative data – that large immigration flows since 2012 have had dampening effects on aggregate wage growth, as complementarity effects offset composition and competition effects.

Wage Growth and Inflation in Europe: A Puzzle?
Wage Growth and Inflation in Europe: A Puzzle?

Author: Vizhdan Boranova

Publisher: International Monetary Fund

Published: 2019-12-20

Total Pages: 40

ISBN-13: 1513521276

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Wages have been rising faster than productivity in many European countries for the past few years, yet signs of underlying consumer price pressures remain limited. To shed light on this puzzle, this paper examines the historical link between wage growth and inflation in Europe and factors that influence the strength of the passthrough from labor costs to prices. Historically, wage growth has led to higher inflation, but the impact has weakened since 2009. Empirical analysis suggests that the passthrough from wage growth to inflation is significantly lower in periods of subdued inflation and inflation expectations, greater competitive pressures, and robust corporate profitability. Thus the recent pickup in wage growth is likely to have a more muted impact on inflation than in the past.

Dutch Inflation: Developments, Drivers, and the Risk of Wage-Price Spiral
Dutch Inflation: Developments, Drivers, and the Risk of Wage-Price Spiral

Author: Saioa Armendariz

Publisher: International Monetary Fund

Published: 2023-03-13

Total Pages: 31

ISBN-13:

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Global inflation surged in 2022, driven by high gas price growth. With Russia being a key supplier of energy products, the start of the war in Ukraine has led to strong inflationary pressures in the euro area (EA), given the region’s significant exposure to the Russian gas. The price shock has been particularly strong in the Netherlands, largely due to the larger share of gas on the energy mix compared to other peers, making the country vulnerable to changing market conditions.

Wage Growth and Inflation in Europe: A Puzzle?
Wage Growth and Inflation in Europe: A Puzzle?

Author: Vizhdan Boranova

Publisher: International Monetary Fund

Published: 2019-12-20

Total Pages: 40

ISBN-13: 1513524844

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Wages have been rising faster than productivity in many European countries for the past few years, yet signs of underlying consumer price pressures remain limited. To shed light on this puzzle, this paper examines the historical link between wage growth and inflation in Europe and factors that influence the strength of the passthrough from labor costs to prices. Historically, wage growth has led to higher inflation, but the impact has weakened since 2009. Empirical analysis suggests that the passthrough from wage growth to inflation is significantly lower in periods of subdued inflation and inflation expectations, greater competitive pressures, and robust corporate profitability. Thus the recent pickup in wage growth is likely to have a more muted impact on inflation than in the past.

Norway
Norway

Author: International Monetary Fund. European Dept.

Publisher: International Monetary Fund

Published: 2019-06-12

Total Pages: 73

ISBN-13: 1498319157

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While many advanced economies are experiencing slower growth, Norway’s output has continued to expand strongly, helped by a robust labor market, positive terms of trade, and some competitiveness gains. Core inflation has picked up to close to 21⁄4 percent. Residential house price growth has softened significantly but prices remain overvalued, and household debt continues to rise. Commercial real estate risks are also intensifying and combine with mounting external risks to cloud the outlook. The Christian Democrats have recently joined Prime Minister Solberg’s governing coalition, which now enjoys a majority in parliament.

Immigration and Wage Dynamics in Germany
Immigration and Wage Dynamics in Germany

Author: Sabine Klinger

Publisher: International Monetary Fund

Published: 2019-12-27

Total Pages: 34

ISBN-13: 1513525646

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German wages have not increased very rapidly in the last decade despite strong employment growth and a 5 percentage point decline in the unemployment rate. Our analysis shows that a large part of the decline in unemployment was structural. Micro-founded Phillips curves fit the German data rather well and suggest that relatively low wage growth can be largely attributed to low inflation expectations and low productivity growth. There is no evidence – from either aggregate or micro-level administrative data – that large immigration flows since 2012 have had dampening effects on aggregate wage growth, as complementarity effects offset composition and competition effects.

Regional Economic Outlook, May 2018, Europe
Regional Economic Outlook, May 2018, Europe

Author: International Monetary Fund. European Dept.

Publisher: International Monetary Fund

Published: 2018-05-15

Total Pages: 106

ISBN-13: 1484339908

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Europe continues to enjoy a strong growth spurt. Growth has firmed up in many European economies and the forecast is for more of the same. Real GDP increased by 2.8 percent in 2017, up from 1.8 percent in 2016. The expansion is largely driven by domestic demand, with investment increasingly contributing. Credit growth has finally picked up, which is helping Europe’s banks to rebuild profitability. While leading indicators have recently begun to ease, they remain at high levels. Accordingly, the forecast is for growth to stay strong, reaching 2.6 percent in 2018 and 2.2 percent in 2019. Amid the good times, however, fiscal adjustment and structural reforms efforts are flagging.