Wage share and economic growth: evidence from Eastern Europe

ABSTRACT

In this article, we explore the causal relationship between wage share and economic growth for 11 Eastern European countries. The methodology used was wavelet coherency for the period between 1995Q1 and 2020Q4. Our results reveal that economic growth acts as the leading role for wage share increase for most Eastern European countries, and only for certain periods, wages can determine economic growth. Furthermore, we find that GDP increases cause wages to increase at different frequencies; there is a positive correlation between GDP growth and wage growth; the effects of wage-led growth policies were weak and only on short periods. Our estimations cast a high degree of uncertainty on the effectiveness of wage increase policies promoted by some national authorities to achieve economic growth.

KEYWORDS:

• Wage share
• GDP growth
• Eastern European countries
• wavelet methodology

JEL CLASSIFICATION:

• E24
• O40

Disclosure statement

No potential conflict of interest was reported by the authors.