William Davidson Institute Working Paper 487
1.1
1.0
0.9
0.8
0.7
0.6
Figure 7. Dynamics of the relative wage index
1998
1999
2000
2001
relative wage index ------trend
The reason for the observed relative wage dynamics lies to some extent in the still
segmented labor market, which results in of high real wage rigidity in Bulgaria.
Significant support to that consideration we find in the elasticity (econometrically
estimated) of the non-tradable wage growth rate in response to changes in the tradable
wage level. According to our estimations, the elasticity is under 1, i.e. 0.48, which
implies that when salaries in the tradable sector increase by 10%, salaries in non-tradable
sector rise only by 4.8%, and that there are other factors apart from labor productivity
that determine nominal wage setting in the services sector.
In spite of the above-discussed contradicting initial assumptions, the following
figure definitely shows the higher price dynamics in the non-tradable sector (PNT > PT).
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