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Discussion: Labour market conditions and wage inflation in CEE economies
Aaron Mehrotra (BIS)
XVIth ESCB Emerging Markets Workshop
Rome, November 2018
Disclaimer: the views expressed are those of the presenter and not necessarily those of the BIS

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Roadmap
Summary of the paper
Some comments

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Summary of the paper
Examines how labour market conditions affect wage inflation in three CEE economies: the Czech Republic, Hungary and Poland
Estimates wage Phillips curves during 2001–17
Wage inflation regressed on lagged inflation, the unemployment gap and productivity growth

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Summary of the paper, II
Finds the expected negative relationship between the unemployment gap and wage inflation
However, there is a large unexplained component in wage growth post-GFC, and the absolute size of the coefficient on labour market slack falls towards the end of the sample
The paper argues that composition effects on labour supply could explain recent weak nominal wage growth

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Comments - general
Welcome contribution to research on wage dynamics in the CEE
Adds to evidence that accounting for the structure of the labour force is relevant for low inflation and wage growth
The paper suggests that some other factors, eg labor underutilisation, seem to be less relevant in the CEE than in major advanced economies
Some hypotheses for low wage growth could be explored further

7. Age structure of the labour force
Age structure of the labour force
Paper shows large increase in labour force participation of older workers
General phenomenon in OECD countries
Mojon and Ragot (2018) include labour force participation rates of different age groups in wage Phillips curves in advanced economies
They find that labour force participation of older workers has a dampening effect on wage growth

9. Flexibility and duality of labour markets
Flexibility and duality of labour markets
Post-GFC, labour markets in some CEE countries have become more flexible (Astrov et al (2018))
Labour market duality could also play a role
Ramskogler (2017) finds significant negative effect of temporary work contracts on wage growth in the CESEE

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Other comments
Would be useful to compare coefficient estimates with those obtained for other economies
Rolling regressions suggest that the effect of unemployment on wage growth weakens only late in the sample
Given the recent pick-up in wages in the CEE, will the weaker link eventually prove to be temporary?