A1379
Title: Club convergence of real wages in the European Union
Authors: Vladimir Arcabic - Faculty of Economics and Business (Croatia) [presenting]
Tomislav Globan - University of Zagreb Faculty of Economics and Business (Croatia)
Goran Markusic - University of Zagreb Faculty of Economics and Business (Croatia)
Abstract: Real wage convergence is analyzed within the European Union, scrutinizing it on both regional and national scales. It questions the prevalent notion that open labor movement within the EU naturally leads to wage parity. Using a flexible log t regression and clustering algorithm, the research uncovers a lack of absolute wage convergence across EU countries and regions. Instead, it identifies distinct convergence clubs based on real wages, delineated as core versus peripheral countries, and further divided into four regional categories. These findings suggest the existence of significant barriers, like cultural and linguistic differences, impeding the free movement of labor and thereby hindering wage equalization. Clubs converge to different steady states, which yield substantially different average real wages. At the national level, the formation of these wage-based clubs is influenced by the output gap, labor market regulations, and productivity. The results are robust and consistent with economic theories concerning real wage determinants. On the regional front, the analysis reveals a complex interplay of multiple variables affecting club formation, with no significant distinctions between certain club pairings. This research challenges established economic theories and underscores the intricate relationship between economic policies, cultural factors, and wage convergence in the European Union.
