Regional wage rigidity: The European Union and United States compared

In recent years it has been pointed out that regional unemployment disparit ies are much more entrenched across member states of the European Union (E. U) than they are in the US. A 'conventional wisdom' has emerged to the effe ct that this difference is due in part to the greater degree of wage rigidi ty in E.U. regions. In this paper we explore this issue by estimating short run and long run real wage (in)flexibility for the regions in five core E. U, countries (Germany, France, Italy, the United Kingdom, and the Netherlan ds) and for the U.S. states for the period 1976-1994. We find that real wag e (in)flexibility varies across regions both in the E.U. and the U.S., but that, on average, regional wages are no less flexible in E.U. core regions than in U.S. states. The paper also examines some of the possible correlate s of regional variations in wage (in)flexibility.