Research

How Heterogeneous Are Wage Phillips Curves - And Why? Sectoral Evidence From The Euro Area

Abstract. How can disaggregated information shed light on the wage Phillips curve? This paper assesses the question using sectoral data for euro area countries over the past 20 years. We first construct sectoral unemployment rates using individual-level data from the EU Labour Survey and show that unemployment varies considerably between sectors but exhibits common dynamics across euro area countries. We then estimate the slope of the wage Phillips curve based on country-sector level data using a shift-share instrument that exploits sectoral labour markets' exposure to age-specific unemployment rates. We show that the slope is relatively steep: a one point percentage decrease in unemployment leads to a 0.7 percent increase in wage growth. In addition, the large cross-section of the data suggests that the slope is convex and very steep for unemployment rates lower than 7%. We then estimate wage Phillips curves for each individual sector, and find significant sectoral heterogeneity in the sensitivity of wage growth to unemployment. A deeper analysis suggests an important role for skills. In particular, the slope of the wage Phillips curve is flatter in the low-skilled sectors and steeper in the high-skilled sectors.

Risk Sharing and Monetary Policy Transmission with Sebastian Hauptmeier (ECB) and Fédéric Holm-Hadulla (ECB).
ECB Working Paper No 2746 (November 2022)

[VoxEU Column] [SUERF Policy Brief No 491] [Speech by ECB Executive Board member Phillip Lane] [Box in the 2022 ECB Economic Bulletin]

Abstract. Using regionally disaggregated data on economic activity, we show that risk sharing plays a key role in shaping the real effects of monetary policy. With weak risk sharing, monetary policy shocks trigger a strong and durable response in output. With strong risk sharing, the response is attenuated, and output reverts to its initial level over the medium term. The attenuating impact of risk sharing via credit and factor markets concentrates over a two-year horizon, whereas fiscal risk sharing operates over longer horizons. Fiscal risk sharing especially benefits poorer regions by shielding them against persistent output contractions after tightening shocks.

The Wage-Price Pass-Through Across Sectors: Evidence from the Euro Area with Miguel Ampudia (ECB) and Marco Lombardi (BIS).
BIS Working Papers No 1192 (June 2024), ECB Working Paper No 2948 (June 2024)

[Presentations by ECB Executive Board member Isabel Schnabel - April 2024 and August 2024] [BIS Annual Economic Report 2024]

This paper studies the pass-through from wages to producer prices using sectoral disaggregated data for the euro area. We find a positive and statistically significant wage-price pass-through that reaches 50% after three years, which differs across sectors. The wage-price pass-through in private services is significantly higher than in industry and takes longer before reaching its peak. While a higher labour intensity is a key component of the pass-through, our estimates indicate that differences in sectoral labour shares alone cannot explain the larger wage-price pass-through in private services compared to industry. Instead, the estimates hint at an important role for international competition in the domestic market for the tradeable sector. They also suggest that the sales destination matters: wage growth contributes to domestic inflation for goods but not to export inflation. Finally, we also provide evidence of an increase in the wage-price pass-through after 2020, particularly in private services.

Globalisation, Energy and Inflation, Evidence From The Euro Area Manufacturing Sector (in progress) with Enisse Kharroubi.

Abstract. We investigate the role of energy price shocks for producer price inflation in the euro area. We assembled a large database at the 2-digit industry level using Eurostat and other sources. We then study the impact of an energy price shock on PPI inflation, using imported energy inflation or exogenous measures and local linear projections techniques. Our results indicate that the effect is larger in energy-intensive sectors, asymmetric (four times larger for positive energy price change) and differs across sales destination. The impact is notably twice as large for the price of goods sold outside of the EA than for goods sold domestically or inside the EA. This suggests a role for currency invoicing in the process of inflation pass-through.

Digitalization and Productivity: In Search of the Holy Grail - Firm-level Empirical Evidence from European Countries with Peter N. Gal, Giuseppe Nicoletti, Stéphane Sorbe and Christina von Rüden.
Published in the International Productivity Monitor (2019), and previously as a OECD Working Paper No. 1533 (2019).

Abstract. This article assesses how the adoption of a range of digital technologies affects firm productivity. It combines cross-country firm-level data on productivity and industry-level data on digital technology adoption in an empirical framework that accounts for firm heterogeneity. The results provide robust evidence that digital adoption in an industry is associated to productivity gains at the firm level. Effects are relatively stronger in manufacturing and routine-intensive activities. They also tend to be stronger for more productive firms and weaker in presence of skill shortages, which may relate to the complementarities between digital technologies and other forms of capital (e.g. skills, organisation, or intangibles). As a result, digital technologies may have contributed to the growing dispersion in productivity performance across firms. Hence, policies to support digital adoption should go hand in hand with creating the conditions to enable the catch-up of lagging firms, notably by easing access to skills.

Policy work

Selling price expectations for services: what do they tell us about consumer price pressures? with Elena Bobeica, Joan Paredes and Flavie Rousseau.
ECB Economic Bulletin Box (August 2024)

Available surveys of selling price expectations of firms for the euro area point to price dynamics that have substantially moderated after the recent large inflationary shock, albeit with a more sluggish adjustment for services than for goods. This box focuses on services and investigates the leading indicator properties of the forward-looking survey data provided by the European Commission. These data tend to anticipate notable turning points in services inflation. In addition, in a forecasting exercise, we find that their leading properties manifest in a non-linear way and are particularly useful in unusual times, such as during the recent inflation spike.

Profit indicators for inflation analysis considering the role of total costs with Elke Hahn.
ECB Economic Bulletin Box (June 2024)

Abstract. Standard indicators of profits in the economy derived from national accounts are based on GDP rather than on output and therefore do not consider the role of intermediate consumption. Differences between GDP-based and output-based profit indicators can be pronounced when there are exceptional developments in the cost of intermediate consumption, as recently observed. This box therefore proposes a new profit indicator based on total supply, which is a measure that corresponds more closely to output than GDP. Taken together, the GDP-based and total supply-based profit margin indicators suggest that in 2023 profits started to buffer the impact of labour cost developments on price pressures, but benefited from the decline in other costs.

Fiscal challenges and inclusive growth in ageing societies with Dorothée Rouzet, Aida Caldera Sánchez and Oliver Röhn.
OECD Economic Policy Papers No. 27 (2019) and OECD Ecoscope (2019).

Abstract. This paper was prepared in support of Japan’s G20 Presidency. It takes stock of ongoing and projected population ageing across G20 economies and its far-reaching implications for economic growth, productivity, inequality within and between generations and the sustainability of public finances. Rising old-age dependency ratios will put the financing of adequate pensions, health and long-term care under high pressure. The paper provides recommendations on policy responses to address ageing-related challenges and highlights good practices. A comprehensive approach is needed, tailored to each country’s institutional and policy settings and social preferences, and may span many areas of public policy: improving the design of public pensions, incentivising private savings, enhancing the efficiency of health care provision, expanding the coverage of social security systems, promoting employability and skills of older workers, and striving for a better labour market inclusion of women, youth and migrants.

Resilience in a time of high debt with Filippo Gori.
OECD Economic Outlook Chapter 2 (2017) and OECD Ecoscope (2017)

Abstract. Indebtedness of households and non-financial corporations in many advanced and emerging market economies is high. In many countries, it is continuing to rise. Highly indebted countries may be vulnerable to financial and real shocks, and such indebtedness may undermine the sustainability of growth in the medium term. Finance supports economic activity and innovation, but it can also increase risks, lower growth, and raise inequality. Whilst indebtedness does not necessarily imply financial distress, it is prudent to scrutinise high indebtedness and changes in the composition of financial portfolios, particularly at a time of exceptionally low, but likely rising, interest rates.