Heterogeneous wage dynamics in Europe: evidence from wage-setting equations, mark-up indicators and country-specific SVAR models

This paper studies wage-setting, price-setting and labor market dynamics in five major European economies—Spain, Germany, France, Italy and the United Kingdom—using annual data from the AMECO database for the period 1995–2024. The empirical strategy combines country-specific wage equations, a simple measure of mark-up based on the wage share, and structural vector autoregressions identified through a recursive structure. The results point to a clear asymmetry across countries. Germany displays the conventional wage-curve pattern, with wages responding negatively to unemployment, whereas Spain exhibits a positive and statistically significant relationship between unemployment and wages. In France, Italy and the United Kingdom, the unemployment coefficient is not statistically distinguishable from zero. By contrast, productivity is a strong and consistently positive determinant of wages in all countries. Mark-up indicators are relatively similar across economies, suggesting that differences in product-market conditions are not the main source of cross-country divergence. The dynamic evidence reinforces this conclusion: productivity shocks lead to persistent wage gains in all countries, while unemployment shocks generate markedly heterogeneous responses. The findings are consistent with the view that wage dynamics in Europe are shaped less by a common market mechanism than by country-specific institutional arrangements and adjustment frictions. The results point to substantial cross-country heterogeneity in wage-setting mechanisms.