Wage Setting, Wage Curve and Phillips Curve: The Italian evidence

Abstract

The purpose of this paper is to investigate some issues of wage setting in order to assess if nominal inertia and wage flexibility characterise the Italian supply side, using multivariate cointegration models. Our estimates indicate that an explicit distinction between stationary and non‐stationary variables and a joint analysis of long‐run and short‐run structure is crucial for achieving clearer results. To this end, we use quarterly time series data for industry sector 1976:1–1993:4. Interesting results have been found concerning the empirical evidence of a long‐run wage curve and the existence of a Phillips curve, through adopting alternative order reduction of the I(2) wage and price variables. Moreover, some insights on regional (North‐South) unemployment effects are pointed out and discussed.

The Last Word on the Wage Curve?

“…7 The robustness of their finding has been confirmed by other investigators using similar data (inter alia, Blackaby and Hunt, 1992;Groot et al, 1992;Bratsberg and Turunen, 1996;Winter-Ebmer, 1996;Baltagi and Blien, 1998;Janssens and Konings, 1998;Baltagi et al, 2000;Kennedy and Borland, 2000;Bellmann and Blien, 2001;Bell et al, 2002;Ikkaracan and Selim, 2003;Montuenga et al, 2003). Several time-series studies (Chiarini and Piselli, 1997;Johansen, 1997) also suggested a long-run inverse relationship between the wage level and unemployment.…”

The Wage Curve Reloaded

“…23. Italy Blanchflower and Oswald (1994a) (2000); Montuenga et al (2003); Chiarini and Piselli (1997);Canziani (1997). 24.…”

Emu

“…1 Their results show the United States as having more rigid real wages than Belgium, Germany and the Nordic countries, but more flexible wages than in other European countries. Using also a VAR methodology applied to Italian data, Chiarini and Piselli (1997) obtain a long-run real wage elasticity to unemployment that is significantly lower than that typically obtained from single-equation estimates. They also found Italian wages to adjust very sluggishly towards long-run equilibrium.…”