WRITTEN QUESTION E-1019/01 by Christopher Huhne (ELDR) to the Commission. Unemployment rate and pay settlements.
Date: 2001-03-30
Institutions: European Parliament, Provisional data
Subjects: economic analysis, economic consequence, minimum pay, unemployment

C 340 E/148

Official Journal of the European Communities

EN

4.12.2001

Answer given by Mr Solbes Mira on behalf of the Commission

(19 June 2001)

The Commission (Eurostat) is currently analysing American practices in the realm of market-sensitive
economic statistics. A report comparing Community and American practices will be submitted in autumn
2001 to the Statistical Programme Committee (SPC). This report is expected to explain performance
differentials and come up with recommendations for improving the performance of the Community
system most notably in terms of timeliness. The SPC will discuss this report and its recommendations and
take the necessary steps for improving the timeliness of economic statistics for the Community.

It should be noted that important actions are already under way in the framework of the (cid:145)Action Plan on
European Monetary Union (EMU) Statistical Requirements(cid:146) prepared by the Commission in close co-
operation with the European Central Bank (ECB) at the request of the (Ecofin) Council. If it will be possible
for the Community to meet American standards in terms of timeliness, however, remains to be seen given
the fact that the Community and American statistical systems are very different. Moreover, American
practices are not always considered to be superior to Community practices.

(2001/C 340 E/166)

WRITTEN QUESTION E-1019/01

by Christopher Huhne (ELDR) to the Commission

(30 March 2001)

Subject: Unemployment rate and pay settlements

Is the Commission able to find, or can it report on any independent findings about a relationship between
the short-term unemployment rate (defined as those seeking work for less than one year) and the
acceleration or deceleration of the growth of basic pay settlements in each EU Member State?

Answer given by Mr Solbes Mira on behalf of the Commission

(13 June 2001)

In economic theory, labour demand depends negatively on the cost of labour. All other things equal, wage
increases beyond productivity growth lead to a reduction of labour demand and employment and an
increase in unemployment. Whenever unemployment is above (below) its equilibrium level, real wages
should decrease (increase) in order to restore equilibrium. Empirically, the responsiveness of wages to the
level of unemployment may differ considerably from Member State to Member State. A Commission
contribution to this literature is notably Mc Morrow (1996) (1) who attributes slow employment growth in
Europe as compared to the United States or Japan to sticky real wages.

The short-run Phillips curve (2) provides a framework for thinking about the dynamics of wages, inflation
and the equilibrium rate of unemployment. However, one should be careful when interpreting estimated
Phillips curves, since the confidence intervals of estimates are generally quite large.

As with most of the literature, these studies deal with unemployment in general, rather than with the
narrower concept of short-term unemployment. Still, there is no reason to believe that results would
change considerably if one applied the analysis to short-term unemployment.

To conclude, a brief look at the evidence would seem to suggest that a negative relationship exists between
the (short-term) unemployment rate and wage settlements, but it is not possible to be precise about the
quantification of this relationship.

(1) The Wage Formation Process and Labour Market Flexibility in the Community, the United States and Japan,

Economic papers No 118.
For an overview, see e.g. OECD (2000): EMU one year on, Economics surveys, February.

(2)