Wage growth in the euro area over 2013 to 2017 was subdued despite notable improvements in the labour market, leading some to claim a breakdown of the output–inflation relationship.
This column presents comparative analyses of wage developments in the euro area, showing that the Phillips curve is alive and well and can be used to explain much of the weakness in wage growth during 2013-2017. Other factors also found to have played a role include compositional effects, the possible non-linear reaction of wage growth to cyclical improvements, and structural and institutional factors.
Figure 1 Measures of wage growth over the cycle
Note: left-hand scale: annual rates of change; right-hand scale: percentage of the labour force. Latest observation: Q2 2019 for unemployment rate and negotiated wages and Q1 2019 for the rest.
Sources: Eurostat, national statistical offices, NCB and ECB staff calculations.
Continue reading and find some illuminating graphs and charts.
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