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Wage rigidity, institutions, and inflation

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  • Steinar Holden

    ()
    (University of Oslo, Norges Bank (Central Bank of Norway)and CESifo Department of Economics, University of Oslo)

  • Fredrik Wulfsberg

    ()
    (Norges Bank (Central Bank of Norway))

Abstract

A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries. However, DNWR for individual workers may induce downward rigidity or "a floor" for the aggregate wage growth at positive or negative levels. Aggregate wage growth may be below zero because of compositional effects, for example that old, high-wage workers are replaced by young low-wage workers. DNWR may also lead to a positive growth in aggregate wages because of changes in relative wages. We explore industry data for 19 OECD countries, over the period 1971-2006. We find evidence for floors on nominal wage growth at 6 percent and lower in the 1970s and 1980s, at one percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country-years with strict employment protection legislation, high union density, centralised wage setting and high inflation.

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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2009/02.

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Length: 39 pages
Date of creation: 27 Jan 2009
Date of revision:
Handle: RePEc:bno:worpap:2009_02

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Keywords: Wage inflation; downward nominal wage rigidity; OECD; wage setting;

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Cited by:
  1. Patrick Lünnemann & Ladislav Wintr, 2010. "Downward wage rigidity and automatic wage indexation: Evidence from monthly micro wage data," BCL working papers 48, Central Bank of Luxembourg.
  2. Stefano Gnocchi & Evi Pappa, 2009. "Do labor market rigidities matter for business cycles? Yes they do," Working Papers 411, Barcelona Graduate School of Economics.

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