Ana Lamo

How are Firms' Wages and Prices Linked: Survey Evidence in Europe

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter exhibits also a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.

The Cyclicality of Consumption, Wages and Employment of the Public Sector in the Euro Area

This study empirically examines the business cycle behaviour of public consumption and its main components, the public wage bill (including its breakdown into compensation per employee and public employment) and intermediate consumption, in the euro area aggregate, euro area countries and a group of selected non-euro area Organization for Economic Co-operation and Development (OECD) countries (Denmark, Sweden, the UK, Japan and the US). It looks across a large number of variables and methods, using annual data from 1960 to 2005. It finds robust evidence supporting that public consumption, wages and employment co-move with the business cycle in a pro-cyclical manner with 1–2 year lags, notably for the euro area aggregate and euro area countries. The findings reflect mainly the correlation between cyclical developments, but also point to an important role of pro-cyclical discretionary fiscal policies.

Public or Private Sector Wage Leadership? An International Perspective ∗

Whether a government acts as a wage leader, placing pressure on private‐sector wages (more open to competition), or whether it plays a passive role and merely follows wage negotiations in the private sector, there are important implications for macroeconomic development, particularly in small open economies and/or countries that are members of a monetary union, such as those of the European Monetary Union. With the notable exception of the case of Sweden, opinion on this issue is still divided. In this paper, we look at public‐ and private‐sector wage interactions from an international perspective (18 OECD countries). We focus on the causal two‐way relationship between public and private wage setting, confirming that the private sector, on the whole, appears to have a stronger influence on the public sector, rather than vice versa. However, we also find evidence of feedback effects from public wage setting, which affect private‐sector wages in a number of countries. When the private sector takes the lead on wages, there are few feedback effects from the public sector, while public wage leadership is typically accompanied by private‐sector feedback effects.

European Women: Why do(n't) they Work?

To increase labour market participation is a major challenge currently faced by the EU, and attracting women into the labour force appears as a promising avenue to do so. Therefore, a clear understanding of what the factors influencing the evolution of female participation rates are in Europe is essential for a successful design of policy measures aiming at increasing participation rates. This article provides empirical evidence on the role that institutions have played in determining participation rates of women in the European labour markets. Our findings discard any doubt on the influence of institutions on womens participation in Europe. The strictness of labour market institutions negatively affects female participation rates. We also find that institutional features aimed at reconciling motherhood with professional life such as maternity leave schemes and part-time work favour participation rates of prime-age women. Additionally, fertility rates and education enrolment have been relevant for the evolution of participation rates during the sample period considered for prime-age and young females, respectively, while cohort effects drive the developments of older females. 1 The views expressed in this article are those of the authors and do not necessarily reflect those of the European Central Bank (ECB).

Labour Supply and Incentives to Work in Europe

Labour Supply and Incentives to Work in Europe highlights recent developments in the labour supply in Europe and gives a detailed assessment of their link with economic policies and labour market institutions. Despite major changes in European labour supply during the past few decades, the existing literature still lacks a comprehensive study of the relationship between labour supply and labour market institutions from a macro perspective.

Changes in the Wage Structure in EU Countries

We study changes in the wage structures in nine EU countries over 1995-2002 and the role of demand, supply and institutional developments in shaping these changes. Using comparable cross-country microeconomic data, we compute for each country and at each decile of the wage distribution, the part of the observed wage change that is due to changes in the composition of workers, employers, and jobs’ characteristics, and the part due to changes in the returns to these characteristics. We find that composition effects derived from changes in age, gender or education of the labour force, largely exogenous to economic developments, had a minor contribution to the observed wage dynamics. In contrast, return and composition effects from characteristics likely driven by economic developments are found most relevant to explain the observed changes. We relate wages and their various components with macroeconomic and institutional trends and find that technology and globalisation are associated with wage increases; migration is associated with declines in wages; whereas the effect of labour market institutions has been mixed.

Fiscal Policies and Economic Growth in Europe: An Empirical Analysis

The methodological issues and econometric problems in the empirical assessment of the determinants of growth are systematically reviewed in the first part of the paper by Hiebert, Lamo, de Avila and Vidal. In the second part, the authors assess empirically the long-run effects of fiscal policy on growth in the EU countries. As in the previous paper, the authors rely on panel data. They make use of a generalized method of moments estimator to control for the endogeneity of explanatory variables and correlated individual effects. In order to control for the cycle, trend growth is used as dependent variable in the estimation, innovating with respect to the standard practice of taking 5-years averages. The results tend to support the hypothesis that a negative relationship between the level of government revenue and trend growth exists for EU countries. Moreover, they show that improvements in the budget balance tend to enhance long-term growth. Finally, the results suggest that changes in government expenditure, controlling for their financing, have a limited impact on the trend growth rate.

Institutional determinants of public--private sector wages' linkages

We estimate the probability of public sector wage leadership – defined as Granger causality from public to private sector wages – in a pool of 15 Organization for Economic Cooperation and Development (OECD) countries as a function of countries’ institutional features, and notably wage-setting institutions. Governments involvement in collective bargaining and collective bargaining centralization are positively correlated with the probability of finding public wage leadership. Among the factors that reduce its probability, we can underline the impact of globalization and the degree of unionization of the economy.

The Contribution of Public Finances to the European Growth Strategy

The objective of the paper is to point out the impact of public finances in the context of the Lisbon growth strategy. Official communications from the Commission and ECOFIN Council note that public finances can contribute to achieving the goal of higher growth and employment via three mechanisms: supporting a stable macro-economic environment, making tax and benefit systems more employment friendly, and redirecting public expenditures towards productive areas. This paper surveys the literature to investigate these channels, to quantify their impact and to identify conditions for their effectiveness. Based on empirical results in the literature, we conclude that there is substantial evidence to suggest that public finances can be considered a source of endogenous growth, but there remains considerable uncertainty regarding the size of their impact. This uncertainty emerges, among other factors, because the effectiveness of fiscal policies hinges on external conditions, such as the state of development. In addition, the link between these policy mechanisms and economic growth seems to have a non-linear functional form in the short and in the long-run.

Labour market adjustment in Europe during the crisis: microeconomic evidence from the wage dynamics network survey

Against the backdrop of continuing adjustment in EU labour markets in response to the Great Recession and the sovereign debt crisis, the European System of Central Banks (ESCB) conducted the third wave of the Wage Dynamics Network (WDN) survey in 2014-15 as a follow-up to the two previous WDN waves carried out in 2007 and 2009. The WDN survey collected information on wage-setting practices at the firm level. This third wave sampled about 25,000 firms in 25 European countries with the aim of assessing how firms adjusted wages and employment in response to the various shocks and labour market reforms that took place in the European Union (EU) during the period 2010-13. This paper summarises the main results of WDN3 by identifying some patterns in firms’ adjustments and labour market reforms. It seeks to lay out the main lessons learnt from the survey in terms of both the general response of EU labour markets to the crisis and how these responses varied across the countries that took part in the survey.