Wage flexibility and the EMU: a nonparametric and semiparametric analysis for the Spanish case

Abstract

According to OCA theory, the creation of the EMU reinforces the role of wage flexibility as an adjustment instrument alternative to the exchange rate in order to mitigate the negative effects of asymmetric shocks. This paper uses the case of Spain as the frame of reference within the EMU – in order to ensure data homogeneity – and examines wage flexibility in the Spanish provinces using both nonparametric and semiparametric techniques. The main result of the paper is that the labour market appears to be quite rigid and, therefore, adverse shocks could have serious consequences in the future.

Notes

¹ The Fan–Ullah (1999) statistic, which tests the non-linear relationship between the productivity and wage growth, is 6.55, which clearly surpasses the 5% critical value of 1.96.

² Fixed effects are not included in Table 1, but are available upon request.