Regional Wage Flexibility: the Wage Curve in Five EU Countries

In this piece of research, we estimate wage curves for five EU member states using homogenous information provided in panel data set (the ECHP) to appraise wage flexibility. Whereas typical estimation concentrates solely on the relationship between current wages and current unemployment rate, we also consider the influence of lagged values of unemployment rates -the unemployment rate at the moment of hiring, and the minimum unemployment rate since the moment of hiring- to take into account the possibility of wages being flexible upwards, but sticky downwards. Results show that, first, wage flexibility does vary across countries and, second, that the traditional view of the wage curve as representing a spot labour market is valid only for one of the countries analysed, the UK.