Wage flexibility in the new European Union members: How different from the old?

In this paper we provide new evidence on aggregate labour market flexibility in the four largest new EU member states from Central Europe (CEEC4) and a benchmark of existing EU countries (EU9). This is done trough direct comparison of several labour market institutions from which we derive an institutional summary indicator. Another approach that we follow is the estimation of aggregate wage Phillips curves from which we obtain estimates for the wage responsiveness to unemployment in these countries. The results show that the CEEC4 cannot be regarded as an homogeneous group. The Czech Republic and Hungary are relatively flexible and comparable to the United Kingdom. Poland belongs to a subgroup with France, Germany and Italy, with reduced labour market flexibility. The results are especially problematic for the Slovak Republic where aggregate wages do not respond to unemployment, although labour market institutions are still more supportive to flexibility than in most incumbent EU countries.