How wages change: micro evidence from the International Wage Flexibility Project

How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals’ earnings in 31 different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries. JEL Classification: E3, J3, J5Downward nominal wage rigidity, Downward real wage rigidity, Wage change distributions, Wage setting

Job insecurity, employability and satisfaction among temporary and permanent employees in post-crisis Europe

Earlier studies established that perceived job insecurity is more strongly related to the experiences of permanent employees, and conversely that perceived employability is more strongly related to the experiences of temporary employees. We challenge these results against the background of the 2008/2009 crisis using samples from the 2010 European Social Survey with employees from Continental and Mediterranean Europe. First, we argue that job insecurity has become a structural phenomenon that associates with temporary and permanent employees’ satisfaction in the same fashion, which found overall support. Second, we argue that employability may have become important for all employees, regardless of contract type, which was largely supported. A cause for concern is that the relationship between perceived job insecurity and satisfaction was comparatively stronger than the relationship between perceived employability and satisfaction. This may suggest that employees have not yet fully embraced ideas about employability as the new form of security

The short- and long-run inconsistency of the expansionary austerity theory: a post-Keynesian/Evolutionist critique

This work provides a critical analysis of the expansionary austerity theory (EAT). The focus is on the theoretical weaknesses of the EAT—the extreme circumstances and fragile assumptions under which expansionary consolidations might take place. The paper presents a simple theoretical model based on both the post-Keynesian and the evolutionary/institutionalist schools. First, it shows that well-designed austerity measures hardly trigger short-run economic expansions in the context of expected long-lasting consolidation plans dealing with remarkably high debt-to-GDP ratios, when the so-called “financial channel” is not operative (i.e. in the context of monetarily sovereign economies), or when the degree of export responsiveness to internal devaluation is low. Even in the context of non–monetarily sovereign countries (e.g. members of the eurozone), austerity’s effectiveness crucially depends on its highly disputable capacity to immediately stabilize fiscal variables. The paper then analyses some possible long-run economic dynamics. Path dependency and cumulativeness make the short-run effects of fiscal consolidation elements of paramount importance to (hopefully) obtaining any medium-to-long-run benefit. Should these effects be even slightly contractionary, short-run costs can breed an endless spiral of recession and ballooning debt in the long run. If so, in the case of non–monetarily sovereign countries debt forgiveness may emerge as the ultimate solution to restore economic soundness. Alternatively, institutional innovations like those adopted since mid-2012 by the European Central Bank are required to stabilize the economy, even though they are unlikely to restore rapid growth in the absence of more active fiscal stimuli

The Short- and Long-Run Inconsistency of the Expansionary Austerity Theory: A Post-Keynesian/Evolutionist Critique

This paper provides a critical analysis of expansionary austerity theory (EAT). The focus is on the theoretical weaknesses of EAT-the extreme circumstances and fragile assumptions under which expansionary consolidations might actually take place. The paper presents a simple theoretical model that takes inspiration from both the post-Keynesian and evolutionary/institutionalist traditions. First, it demonstrates that well-designed austerity measures hardly trigger short-run economic expansions in the context of expected long-lasting consolidation plans (i.e., when adjustment plans deal with remarkably high debt-to-GDP ratios), when the so-called "financial channel" is not operative (i.e., in the context of monetarily sovereign economies), or when the degree of export responsiveness to internal devaluation is low. Even in the context of non-monetarily sovereign countries (e.g., members of the eurozone), austerity's effectiveness crucially depends on its highly disputable capacity to immediately stabilize fiscal variables. The paper then analyzes some possible long-run economic dynamics, emphasizing the high degree of instability that characterizes austerity-based adjustments plans. Path-dependency and cumulativeness make the short-run impulse effects of fiscal consolidation of paramount importance to (hopefully) obtaining any appreciable medium-to-long-run benefit. Should these effects be contractionary at the onset, the short-run costs of austerity measures can breed an endless spiral of recession and ballooning debt in the long run. If so, in the case of non-monetarily sovereign countries debt forgiveness may emerge as the ultimate solution to restore economic soundness. Alternatively, institutional innovations like those adopted since mid-2012 by the European Central Bank are required to stabilize the economy, even though they are unlikely to restore rapid growth in the absence of more active fiscal stimuli

Changes in labour market transitions in Ireland over the Great Recession: what role for policy?

This paper assesses the impact the Great Recession had on individuals' transitions to and from unemployment in Ireland. The rate of transition from unemployment to employment declined between 2006 and 2011, while the rate from employment to unemployment increased. The results indicate that young people are much less likely to exit unemployment but, at the same time, have a lower risk of becoming unemployed. Education has become an increasingly important factor in supporting unemployment exits and reducing the risk of unemployment since the recession. The findings are supportive of current policies aimed at facilitating access to higher education for unemployed people, but they raise questions with regard to the adequacy of the Youth Guarantee

Exchange rate uncertainty and import prices in the euro area

This paper analyses the effects of exchange rate uncertainty on the pricing behaviour of import firms in the euro area. Uncertainty is measured via the volatility of the structural shocks to the exchange rate in a non-linear VAR framework and is an important determinant of import prices. An increase in exchange rate uncertainty is associated with a fall in prices on average, which suggests that the exchange rate risk is borne by the importers. The analysis utilizes a dataset on industrial import prices, disaggregated by origin of imports. Controlling for intra- and extra-euro area trade is important.In diesem Papier werden die Auswirkungen der Wechselkursunsicherheit auf das Preisverhalten von Importfirmen in der Eurozone analysiert. Die Unsicherheit wird über die Volatilität der Strukturschocks auf den Wechselkurs in einem nichtlinearen VAR-Modell gemessen. Sie ist eine wichtige Determinante der Importpreise. Eine Zunahme der Wechselkursunsicherheit ist mit einem durchschnittlichen Rückgang der Preise verbunden, was darauf hindeutet, dass das Wechselkursrisiko durch die Importeure getragen wird. Die Berücksichtigung der Herkunft des Handels (innerhalb oder außerhalb des Euroraums) ist wichtig für die Ermittlung der Auswirkungen von Wechselkursbewegungen auf die Preisentwicklung