6/2011 Aurelijus Dabušinskas and Tairi Rõõm. Survey evidence on wage and price setting in Estonia

Working Papers of Eesti Pank
No 6/2011

In this paper, we give a comprehensive overview of wage and price adjustment practices in Estonia, drawing from two managerial surveys which were conducted in autumn 2007 and summer 2009 within the framework of the Wage Dynamics Network (WDN), a joint research project by the Eurosystem/ESCB. Our discussion covers a broad range of results, including firm-level descriptive evidence for several institutional and structural characteristics of the Estonian economy such as unionisation and collective bargaining coverage, labour intensity of production, remuneration methods, product market competition, etc., and insights into the wage and price setting behaviour of Estonian firms. To illustrate this behaviour, we give an overview of the frequency and timing of wage and price changes; the extent of downward nominal and real wage rigidity; the determinants of wages paid to newly employed workers; and finally, the nature of firms' adjustments to cost push and negative demand shocks.
JEL Code: D22, E3, J3
Key words: survey data, wage setting, price setting, Estonia

* We thank Kadri Raudvere for research assistance.

Authors' e-mail addresses: aurelijus.dabusinskas [at] eestipank.ee, tairi.room [at] eestipank.ee

The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank.

Contents

1. Introduction
2. Design of the survey
3. Labour market characteristics
3.1. Labour market institutions: Collective bargaining
3.2. Labour market institutions: Employment protection legislation
3.3. Labour cost share
3.4. Remuneration methods
3.5. Competition in the product market
4. Wage and price adjustment: frequency, timing and interaction
4.1. Frequency of wage changes
4.2. Frequency of price changes
4.3. Comparing the frequency of wage and price changes
4.4. Time versus state dependence in wage and price changes
4.5. Synchronization of wage and price changes
5. Downward wage rigidity
6. Wages of newly hired employees
7. Adjustment to demand and cost shocks
8. Summary: labour market flexibility in Estonia compared to that in the EU
References
Appendix 1. Main conomic indicators of the Estonian economy, 1997-2010
Appendix 2. Macroeconomic developments in countries that participated in the follow-up WDN survey