Estimation of the Great Decoupling on the Example of Croatia, as Compared With Germany and Poland

Abstract

Th ere are many papers in the economic literature that examine the link between real wages and labor productivity while each of them have diff erent approaches and aspects of research. It is widely believed that in many countries wage growth has fallen massively behind productivity growth and has caused a productivity-wage gap popularly called "the great decoupling". Th e paper deals with this important issue at the level of Croatia, Germany and Poland by analyzing trajectories and causality between compensations of employees and productivity per person employed. It is important and unique because it presents a new empirical approach that observes the productivity-wage gap between these countries on the individual state level. Th e research reveals interesting results about how the great decoupling in the observed countries is a myth according to the rate trends. However, there is causality between labor productivity and compensation of employees (and vice-versa) for Germany and Poland, but not for Croatia.