Aizhan Shorman

The European labor market incorporates a great variety of institutional frameworks and divergent macroeconomic performances. The hump-shaped curve hypothesis of Calmfors and Driffill is interesting in its linkage of centralization of wage bargaining processes to real wages and unemployment. From the ICTWSS and OECD databases, we identify three labor market profiles according to their degrees of centralization (decentralized, centralized and intermediate). We aggregate the main institutional components of the dispersion of countries into a centralization indicator on which we regress real wages and unemployment rate. The hump-shaped relationship that results from our analyses is robust and pertinent to country trajectories over the years, especially to German decentralization. The poor macroeconomic performance of some European countries after the 2008 financial shock appears to be linked to the countries’ consistent intermediate levels of centralization that result in a manifestation of the negative effects of both centralized and decentralized models