677 - On Wage Formation, Wage Development and Unemployment

Wetenschappelijke publicatie
Date 1 December 2001

Since the mid nineties unemployment has substantially decreased in some EMU-countries. One important factor underlying this development is wage moderation. This paper investigates wage formation and wage development. Using a theoretical wage bargaining model main determinants of formation are described, a non-linear wage equation is derived and estimated with annual or quarterly data of the Netherlands, Spain and Ireland. The effects of the individual determinants on wages are calculated and, in addition, each determinant’s contribution to the total wage developments is analysed over the last three decades. It follows that each decade is characterised by few dominating determinants. The contribution of unemployment has altered considerably. Key words: wage formation, wage development, unemployment JEL codes: C22, E24, J30