## Wage Growth and Inflation in Europe: A Puzzle?

_IMF Working Papers, December 20, 2019_

## Source details

**Canonical URL:** [Wage Growth and Inflation in Europe: A Puzzle?](https://www.imf.org/en/publications/wp/issues/2019/12/20/wage-growth-and-inflation-in-europe-a-puzzle-48845)

## Other formats

- [Markdown version](/en/publications/wp/issues/2019/12/20/wage-growth-and-inflation-in-europe-a-puzzle-48845/index.md)
- [Structured JSON version](/en/publications/wp/issues/2019/12/20/wage-growth-and-inflation-in-europe-a-puzzle-48845/index.json)
- [Bundle manifest](/en/publications/wp/issues/2019/12/20/wage-growth-and-inflation-in-europe-a-puzzle-48845/bundle-manifest.json)

## Bibliographic details
- Authors: Vizhdan Boranova, Raju Huidrom, Sylwia Nowak, Petia Topalova, Volodymyr Tulin, Richard Varghese
- Published: December 20, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513521275.001

---

### Key question and context
- Wages have been rising faster than productivity in many European countries, while signs of underlying consumer price pressures remain limited.
- The paper examines the historical link between wage growth and inflation in Europe and the factors that influence the strength of the passthrough from labor costs to prices.

### Main empirical findings
- Historically, wage growth has led to higher inflation, but the impact has weakened since 2009.
- Empirical analysis indicates the passthrough from wage growth to inflation is significantly lower in the following conditions:
  - Periods of subdued inflation and subdued inflation expectations.
  - Periods of greater competitive pressures.
  - Periods of robust corporate profitability.
- Conclusion drawn: the recent pickup in wage growth is likely to have a more muted impact on inflation than in the past.

### Implications for policy and interpretation
- Rising wages do not necessarily imply a strong near-term rise in consumer price inflation given weakened wage-inflation transmission since 2009.
- Policy assessments of inflation risk from labor cost increases should account for:
  - Current inflation and inflation expectations dynamics.
  - Degree of competition in product markets.
  - Corporate profitability conditions.

### Publication metadata (for reference within content)
- Authors: Vizhdan Boranova, Raju Huidrom, Sylwia Nowak, Petia Topalova, Volodymyr Tulin, Richard Varghese
- Date: December 20, 2019
- Series: IMF Working Papers; Working Paper No. 2019/280
- Pages: 40
- DOI: https://doi.org/10.5089/9781513521275.001

*Source: IMF Working Paper “Wage Growth and Inflation in Europe: A Puzzle?” by Vizhdan Boranova et al., December 20, 2019.*

---

## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2019/wpiea2019280-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2019/wpiea2019280-print-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2019/12/20/wage-growth-and-inflation-in-europe-a-puzzle-48845_