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Nominal Wage Rigidity in Contract Data: A Parametric Approach

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Author Info
Louis N. Christofides
Man Tuen Leung

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Abstract

Using wage agreements reached in the Canadian unionized sector during 1976-99, a period of high as well as exceptionally low inflation, we consider how histograms of wage adjustment changed as inflation reached the low levels of the 1990s. The histograms and parametric tests suggest that wage adjustment is characterized by downward nominal rigidity and significant spikes at zero. There is some evidence of modest menu-cost effects. We examine whether the rigidity features of wage adjustment are sensitive to indexation provisions, and investigate whether the distinction between short and long contracts is useful. Copyright (c) The London School of Economics and Political Science 2003.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 70 (2003)
Issue (Month): 280 (November)
Pages: 619-638
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Handle: RePEc:bla:econom:v:70:y:2003:i:280:p:619-638

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Farès, J. & Hogan, S., 2000. "The Employment Costs of Downward Nominal-Wage Rigidity," Working Papers 00-1, Bank of Canada. [Downloadable!]
  2. Ronald G. Ehrenberg & Leif Danziger & Gee San, 1984. "Cost-of-Living Adjustment Clauses in Union Contracts," NBER Working Papers 0998, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Fehr, Ernst, 2000. "The Robustness and Real Consequences of Nominal Wage Rigidity," CEPR Discussion Papers 2516, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. David Card, 1983. "Cost-of-living escalators in major union contracts," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 37(1), pages 34-48, October.
  5. Wayne Simpson & Norman E. Cameron & Derek Hum, 1998. "Is Hypoinflation Good Policy?," Canadian Public Policy, University of Toronto Press, vol. 24(3), pages 291-308, September. [Downloadable!] (restricted)
  6. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Agell, Jonas & Lundborg, Per, 1995. " Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(2), pages 295-307, June.
  8. Ernst Fehr & Lorenz Goette, 2000. "Robustness and Real Consequences of Nominal Wage Rigidity," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  9. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 1-76. [Downloadable!]
  10. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December. [Downloadable!] (restricted)
  11. Kaufman, Roger T & Woglom, Geoffrey, 1984. "The Effects of Expectations on Union Wages," American Economic Review, American Economic Association, vol. 74(3), pages 418-32, June. [Downloadable!] (restricted)
  12. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November. [Downloadable!] (restricted)
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  13. Christofides, Louis N, 1990. "The Interaction between Indexation, Contract Duration and Non-contingent Wage Adjustment," Economica, London School of Economics and Political Science, vol. 57(227), pages 395-409, August. [Downloadable!] (restricted)
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  14. Card, David, 1986. "An Empirical Model of Wage Indexation Provisions in Union Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S144-75, June. [Downloadable!] (restricted)
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  15. Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-87, November. [Downloadable!] (restricted)
  16. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May. [Downloadable!] (restricted)
  17. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March. [Downloadable!] (restricted)
  18. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 183-203, April. [Downloadable!] (restricted)
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  19. Vroman, Wayne, 1984. "Wage Contract Settlements in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 661-65, November. [Downloadable!] (restricted)
  20. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December. [Downloadable!] (restricted)
  21. David E. Lebow & David J. Stockton & William L. Wascher, 1995. "Inflation, nominal wage rigidity, and the efficiency of labor markets," Finance and Economics Discussion Series 95-45, Board of Governors of the Federal Reserve System (U.S.).
  22. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp.. [Downloadable!] (restricted)
  23. Christofides, Louis N, 1987. "Wage Adjustment in Contracts Containing Cost-of-Living Allowance Clauses," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 531-36, August. [Downloadable!] (restricted)
  24. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September. [Downloadable!] (restricted)
  25. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe," Working Paper 2004/5, Norges Bank. [Downloadable!]
    Other versions:
  2. Kuroda, Sachiko & Yamamoto, Isamu, 2005. "Wage Fluctuations in Japan after the Bursting of the Bubble Economy: Downward Nominal Wage Rigidity, Payroll, and the Unemployment Rate," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(2), pages 1-29, May. [Downloadable!]
  3. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Francesco Devicienti & Agata Maida, 2004. "Rigidità salariali e ruolo delle istituzioni: l'evidenza empirica da microdati," LABORatorio R. Revelli Working Papers Series 35, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
  5. Christoph Knoppik & Thomas Beissinger, 2009. "Downward nominal wage rigidity in Europe: an analysis of European micro data from the ECHP 1994–2001," Empirical Economics, Springer, vol. 36(2), pages 321-338, May. [Downloadable!] (restricted)
    Other versions:
  6. Steinar Holden & Fredrik Wulfsberg, 2007. "Downward nominal wage rigidity in the OECD," Working Paper Series 777, European Central Bank. [Downloadable!]
    Other versions:
  7. Louis N. Christofides & Paris Nearchou, 2007. "Real and Nominal Wage Rigidities in Collective Bargaining Agreements," IZA Discussion Papers 2799, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Maida Agata & Devicienti Francesco & Sestito Paolo, 2005. "Downward wage rigidity in Italy: micro-based measures and implications," Department of Economics Working Papers 200503, University of Turin. [Downloadable!]
    Other versions:
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