The Wage Curve and Regional Salary Differentials in the Czech Republic

• Thesis title in Czech: Mzdová křivka a regionální mzdové rozdíly v České republice
• Thesis title in English: The Wage Curve and Regional Salary Differentials in the Czech Republic
• Key words: Mzdová křivka, Nezaměstnanost, Regionální mzda, Česká republika, Ekonomie práce, Mzdová konvergence
• English key words: Wage curve, Unemployment, Regional wage, Czech Republic, Labor economics, Wage convergence
• Academic year of topic announcement: 2018/2019
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: PhDr. Martina Mysíková, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 10.05.2019
• Date of assignment: 10.05.2019
• Date and time of defence: 09.09.2020 09:00
• Venue of defence: Opletalova - Opletalova 26, O105, Opletalova - místn. č. 105
• Date of electronic submission: 30.07.2020
• Date of proceeded defence: 09.09.2020
• Opponents: doc. PhDr. Julie Chytilová, Ph.D.

References

Bibliography

Blanchflower, D., & Oswald, A. (1994). Estimating a Wage Curve for Britain 1973-90. The Economic Journal, 104(426), 1025-1043. doi:10.2307/2235062

Blanchflower, D., & Oswald, A. (1995). International Wage Curves, in Differences and Changes in Wage Structures, Freeman and Katz. 1995, 145-174

Blanchflower, D. G. (2001). Unemployment, Well-Being, and Wage Curves in Eastern and Central Europe. Journal of The Japanese and International Economies, 15(4), 364–402. https://doi.org/10.1006/jjie.2001.0485

Fialová, K. (2003). Regionální diferenciace mezd v České republice a její determinanty. [rukopis]. Retrieved from https://search.ebscohost.com/login.aspx?direct=true&AuthType=ip,shib&db=cat04374a&AN=kup.000311403&lang=cs&site=eds-live&scope=site

Kamil Galuščák, & Daniel Münich. (2005). Regional Wage Adjustments and Unemployment: Estimating the Time-Varying Wage Curve (in English). Czech Journal of Economics and Finance (Finance a Uver), (1–2), 68. Retrieved from https://search.ebscohost.com/login.aspx?direct=true&AuthType=ip,shib&db=edsrep&AN=edsrep.a.fau.fauart.v55y2005i1.2p68.82&lang=cs&site=eds-live&scope=site

Preliminary scope of work in English

Research question and motivation

Wage paid to the labour force is determined by numerous factors: the individual characteristics of workers, such as education or level of job experience, on one hand and the economic environment conditions that are exogenous for a single worker, e.g. marginal product of labour with regard to the production technology, share of wages on the revenues or the level of excess supply on the labour market. From all these aspects, the aim of this work is to focus on the influence of a cyclical characteristic, the unemployment rate in regions, on the respective level of salary, that being an important relationship that reveals the nationwide elasticity of wages with respect to the business cycle.

Since the seminal study by Blanchflower and Oswald (1994), many econometric works were dedicated to the relation between unemployment rate in a region and the pay of local workers. While Blanchflower and Oswald (1994) initially estimated the elasticity of wage rate with respect to joblessness on micro-level data for the UK and the U.S., they then extended their study to a set of ten developed countries (Blanchflower and Oswald, 1995) and finally for 23 transition economies, including the Czech Republic (Blanchflower, 2001).

Fialová (2003) and Galuščák and Münich (2005) examined district-level aggregated data for the Czech Republic. In accordance with previous empirics, they concluded that unemployment elasticity of wages was approximately -0.1, proving that data aggregation to the district level has no impact on the observed relationship. To sum it up, there is a significant effect of the local unemployment rate on the related wage level, observable on different level of aggregation in many countries, persistent with some minor exceptions also over time. A weaker influence of unemployment on wages was observed only in the recession period of 1997-1999 in high-unemployment regions by Galuščák and Münich (2005), implying that wages become possibly more rigid during such times.

Furthermore, the goal of this research will be to compare the aforementioned wage elasticity obtained from recent data with earlier estimations, indicate possible recent development and the its driving forces, and interpret the meaning of wage rigidity for an economic cycle.


Contribution

This work aims at revealing whether there has been some changes in the Wage curve for the Czech Republic after the end of the economic transformation and investigating effects of a major economic contration on this relation. To my best knowledge, the existing Czech empirical reserach has not thoroughly examined the last-decade development, therefore, I aim to contribute to the current state of research by revealing the recent trends prevailing in this aspect of the labour market.

A special attention will also be paid to an analysis of regional economic differences within the Czech Republic and the rate of convergence in the wage rate between the regions. This research will yield new knowledge about the contemporary situation, which can be used for further research or regional policy recommendations.

Methodology

The work will revise the theoretical hypothesis of union bargaining and efficiency wages theory, which both underlie the relation between unemployment rate and the wage level. In case of union bargaining hypothesis, unemployment affects the negotiating power of the unions in a decreasing manner, because of a lower number of employees in the production process that is represented by them and because of lower labour demand in the whole economy. Efficiency wage theory similarly claims that in times of high employment the cost of job loss for an employee is rather low as the labour market offers many vacant job positions he could switch to, therefore employers have to offer higher salaries to increase workers’ effort. The implications of these theories will then be contested with the findings of previous work on this topic.

After that, data available and suitable for the analysis will be described, both by quantitative measures as well as by their relevance for the research question, discussing their potential positive and/or negative attributes. A model capturing the examined relationship will be then specified and hypotheses derived based on the theoretical and empirical background will be tested by regression analyses, including testing the significance of the impact of particular regional characteristics (unemployment, sectoral structure, age structure, share of degree education, etc.) on wage rates.

Outline

Abstract
Introduction
 Determinants of the wage level
 Wage unemployment elasticity and the bussiness cycle
Literature Review
 Concept of the Wage curve
 Previous results in this field
 Research‘s recent development
Theoretical background
 Efficiency wages approach
 Union bargaining approach
 Specification of hypothesis to test
Data and Comparative regional analysis
 Description of the dataset
 Development of wage levels
 Economic structure specifics and convergence
Methodology
 Model Specification
 Predicted effects of regressors
Results
 Evaluation of the hypotheses
 Interpretention of the estimated results
Conclusion
 Summary of the work
 Suggestions for further research