Stochastic and Club Convergence in Real Wages in European Union: Evidence from Aggregate and Sector Level Data

Abstract

The paper examined real wage convergence across 27 European economies, at aggregate and sectoral levels, using the panel unit root tests of stochastic convergence and the club clustering procedure. Convergence was absent for a panel as a whole, but present within the clubs. In most sectors, the common component of the relative wages was stationary, while idiosyncratic component contained unit roots, suggesting the country- and sector-specific drivers of convergence and only transitory effects of exogenous forces. The most pronounced club convergence was observed in the sectors characterized by significant labor mobility, knowledge intensity and speed of technological change.