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Aggregate Wage Flexibility in New EU Member States

  • Economics


A fixed exchange rate regime eliminates one degree of freedom in absorbing macroeconomic shocks. Therefore, there is a call for higher labor market flexibility in countries which are members of the monetary union or those which intend to join the monetary union. Focusing on the cross-country analysis of labor markets in the enlarged European Union, this paper aims to assess empirically the role of aggregate wages as a correction mechanism for dealing with economic disturbances. We apply classical time series/panel, state-space and cointegration techniques to determine the extent to which aggregate wages can accommodate shocks in the economy.

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