Changes in Wages and Cyclical Fluctuations in Lithuania in View of the Austrian School of Economics

Abstract

The aim of the paper was to evaluate the usefulness of the Austrian Business Cycle Theory (ABCT) in explaining the changes in the wage structure occurring during different phases of the business cycle. Research methods applied are consistent with the methodological viewpoint of the Austrian School of Economics (ASE), using a mix of deductive reasoning and statistical analysis.
The analysis of data on wage developments in various sectors of the Lithuanian economy in a cyclical environment has allowed confirming the research hypothesis almost entirely. The study has demonstrated that from 2004 to 2013 during expansion and contraction phases the most dynamic change in wages occurred in sectors that were in the early stages of production, i.e. most distant from consumption, and were producing the most durable consumer durables.
Empirical verification of arguments formulated by the ASE is very rare. In global economic literature such studies of changes in the labour market during cyclical fluctuations are scarce. This study fills this gap by confronting the ASE theory with wage changes in a real-life economy.