On the Identification of Relative Wage Rigidity Dynamics. A Proposal for a Methodology on Cross-Section Data and Empirical Evidence for Poland in Transition

The relationship between wages and (un)employment is probably one of the most widely investigated issues in empirical economics. Whereas in the early post-war period, the focus was on macroeconomic Phillips-curve-type relationships from wage or price inflation to unemployment, current research is mainly concerned with wage responses to unemployment (the wage curve) or the wage and (un)employment structure and relies strongly on individual data. The observation of rising unemployment in Europe (especially for the unskilled) and of increasing wage inequality in the United States has led to the popular belief that these phenomena are ‘two sides of the same coin’ (Krugman), namely a fall in the relative demand for unskilled labour. This hypothesismaintains that rigid wages in Europe prevented the relative fall in unskilled wages observed in the United States, causing quantity adjustments in the form of higher unemployment.