Norges Bank

Staff Memo

The Phillips curve and beyond - Why has wage growth been so low?

Author:
Leif Brubakk, Kåre Hagelund and Eilert Husabø
Series:
Staff Memo
Number:
10/2018

In this paper, we estimate various dynamic wage equations for mainland Norway. Our starting point is a standard Phillips curve. We then expand on our baseline specification by adding explanatory variables suggested by economic theory. In our preferred specification, the labor share plays the role of an error correction term. This means that whenever the wage level is high relative to the value of productivity, there is a tendency for wage growth to slow down. We demonstrate that accounting for this level effect, which has also proven useful in earlier studies on Norwegian data, is particularly helpful in understanding the low wage growth in recent years.

Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.

ISSN 1504-2596 (online)

Published 3 December 2018 09:45
Published 3 December 2018 09:45