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IZA Policy Paper No. 144
February 2019
Short-Term and Long-Term Determinants of Moderate Wage Growth in the EU
Aron Kiss, Kristine Van Herck

This paper analyses the factors explaining moderate wage growth in the EU in the post-crisis period. It investigates whether the historical relationship between wages and unemployment has weakened and whether composition effects moderated wage growth. The results suggest a negative answer to both questions. Wages in the EU have not stopped reacting to unemployment developments after the 2008 crisis. Wage growth was moderate because of low inflation, low trend productivity growth, and high unemployment. There are only a few Member States with a significant 'shortfall' in wage growth, including both low and high-unemployment countries. Migration, ageing and collective bargaining institutions appear to have mostly transitory effects on wage growth. During the last decade, changes in the composition of the workforce had a small but positive impact on wage growth in most of the EU, especially due to increasing average age and education level. In some Member States such as Germany, Italy, Luxembourg and Portugal, composition effects were a main driver of wage growth.

Communications
Mark Fallak
mark.fallak@liser.lu
+352 585-855-526
World of Labour
Olga Nottmeyer
olga.nottmeyer@liser.lu
+352 585-855-501
Network Coordination
Christina Gathmann
christina.gathmann@liser.lu

The IZA@LISER Network is a global community of scholars dedicated to excellence in labor economics and related fields, now coordinated at the Luxembourg Institute of Socio-Economic Research (LISER) following its transition from Bonn.

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