Extract from an article by Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon and Ricardo Reis
Real hourly wage growth has behaved quite differently across countries over the past ten years. This column describes how the majority view of the latest Centre for Macroeconomics and CEPR expert survey is that low growth of real wages has had a positive impact on European employment rates during the recovery phase of the Great Recession. A strong majority of respondents also agrees that the dire performance of UK real wage growth relative to the big Eurozone economies is in large part due to the UK’s labour market policies, which provide workers with comparatively weak protection.
In its Employment Outlook 2016, the OECD documents that real hourly wage growth has behaved quite differently across countries over the past ten years (OECD 2016).
This is true even among the large European economies. Comparing the level of real hourly wages in the fourth quarter of 2015 with a counterfactual value based on the assumption that wages had grown according to the pre-crisis growth rates after the fourth quarter of 2007 reveals stark differences. This ‘cumulative wage gap’ is +14.6% for Germany, –1.6% for France, –3.9% for Italy, +1.0% for Spain, and –26.3% for the UK (OECD 2016: Table 1.A2.1).
Some of these differences are due to composition effects, but they are clearly not the whole story. Dustmann et al. (2014) document that since 2007, the UK has also experienced a massive decrease in competition-weighted relative unit labour cost, whereas this measure remained roughly constant for France, Germany, and Italy (Dustmann et al. 2014). Spain also displayed a decrease, but smaller than that observed for the UK…(continues)
SOURCE: Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon and Ricardo Reis , “Flexible labour markets, real wages, and economic recoveries: Views of economists”, VOX: CEPR’s Policy Portal, 29 May 2017
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