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Assessing real wage flexibility in Albania

Papavangjeli, Meri (2018): Assessing real wage flexibility in Albania. Published in: Bank of Albania Economic Review 2018H1 (30 July 2018): pp. 1-11.

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Abstract

Based on aggregate level data for the period 2000Q1-2017Q2, this article aims at assessing the degree of real wage flexibility in Albania within a vector error-correction model, where real wage flexibility is conceptualized using two indicators: the responsiveness of real wages to unemployment rate and their responsiveness to changes in productivity. In the very short run (2-3 quarters), most of the variation in real wages forecast errors is explained by their past values (more than 70%) rather than by labor productivity or unemployment rate. The analysis confirms the fact that real wages are slightly flexible towards these two variables. However, these conclusions are based on a particular statistical methodology and may be affected by certain statistical problems due to the quality of the underlying data series.

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