Wage Moderation in Spain and in the Euro Area

One of the most visible characteristics of the recent economic recovery is the moderation of wage growth in a good number of advanced economies. This article analyses quantitatively the contribution of several factors to changes in the wage growth rate in Spain and in the euro area during the current upturn. In both cases, the results show that the recent wage moderation is attributable to relatively high levels of labour market slack and low inflation expectations. For the euro area, another significant factor is low productivity growth, in contrast to other similar phases of the economic cycle. The analysis also reveals that, in the most recent period, it is important to take into account broader slack indicators than the unemployment rate, given that the high proportion of involuntary part-time and discouraged workers are exerting some downward pressure on wages