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How Rigid are Nominal Wages? Evidence and Implications for Germany

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  • Christoph Knoppik
  • Thomas Beissinger

Abstract

Many recent attempts to find evidence on downward nominal wage rigidity in micro data have suffered from problems such as composition bias and the effects of measurement error. In this paper, a model of proportional downward nominal wage rigidity is developed which avoids these problems by taking into account the determinants of wage changes and the measurement process that leads to observable earnings changes. We find a high degree of downward nominal wage rigidity in German micro data. Its real implications for individual expected wage growth, the aggregate wage level and equilibrium unemployment have marked effects for rates of inflation lower than 3 percent. Copyright The editors of the "Scandinavian Journal of Economics", 2003 .

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.

Volume (Year): 105 (2003)
Issue (Month): 4 (December)
Pages: 619-641

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Handle: RePEc:bla:scandj:v:105:y:2003:i:4:p:619-641

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  12. Steinar Holden, 2001. "Monetary Policy and Nominal Rigidities under Low Inflation," CESifo Working Paper Series 481, CESifo Group Munich.
  13. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
  14. Kenneth J. McLaughlin, 1999. "Are nominal wage changes skewed away from wage cuts?," Review, Federal Reserve Bank of St. Louis, issue May, pages 117-132.
  15. David E. Lebow & Raven E. Saks & Beth Anne Wilson, 1999. "Downward nominal wage rigidity: evidence from the employment cost index," Finance and Economics Discussion Series 1999-31, Board of Governors of the Federal Reserve System (U.S.).
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