Wage flexibility in Britain: some micro and macro evidence
AbstractThis paper uses the British New Earnings Survey (NES) to derive both macro and micro measures of wage rigidities. The data set spans the 1975-2000 period, with wage observations covering approximately 1% of the British workforce. Using this data set, we consider whether wages have become more flexible in recent years. Evidence drawn from macroeconomic wage equation estimates suggests that, while the relationship between wages and unemployment seems to have changed, the responsiveness of wages to unemployment rates has declined in the 1990s. In contrast to previous findings, these results suggest that wages have become less flexible. Micro tests mainly reveal that the prevalence of nominal rigidities has not declined, although there is weak evidence for a decline in the most recent years. Micro tests of wage rigidities also include an analysis of real wage rigidities. There is evidence in the NES of spikes in the wage-change distribution at the rate of inflation, beyond what would be anticipated from the rest of the distribution, suggesting the presence of real wage rigidities. This evidence is shown to be statistically significant, and points to an increase in real rigidities over the period of study.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 331.
Date of creation: Jul 2007
Date of revision:
Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
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.:
- Stephen Nickell & Glenda Quintini, 2003.
"Nominal wage rigidity and the rate of inflation,"
Royal Economic Society, vol. 113(490), pages 762-781, October.
- McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
- 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.
- Jennifer V Greenslade & Richard G Pierse & Jumana Saleheen, 2003. "A Kalman filter approach to estimating the UK NAIRU," Bank of England working papers 179, Bank of England.
- Joseph G. Altonji & Paul J. Devereux, 1999.
"The Extent and Consequences of Downward Nominal Wage Rigidity,"
NBER Working Papers
7236, National Bureau of Economic Research, Inc.
- Devereux, Paul J. & Altonji, Joseph G., 2000. "The extent and consequences of downward nominal wage rigidity," Open Access publications from University College Dublin urn:hdl:10197/311, University College Dublin.
- MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-37, September.
- Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
- Erica L. Groshen & Mark E. Schweitzer, 1997.
"Identifying inflations grease and sand effects in the labor market,"
9705, Federal Reserve Bank of Cleveland.
- Erica Groshen & Mark Schweitzer, 1999. "Identifying Inflation’s Grease and Sand Effects in the Labor Market," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 273-314 National Bureau of Economic Research, Inc.
- Erica L. Groshen & Mark E. Schweitzer, 1997. "Identifying Inflation's Grease and Sand Effects in the Labor Market," NBER Working Papers 6061, National Bureau of Economic Research, Inc.
- Erica L. Groshen & Mark E. Schweitzer, 1997. "Identifying inflation's grease and sand effects in the labor market," Staff Reports 31, Federal Reserve Bank of New York.
- Ernst Fehr & Lorenz Goette, .
"Robustness and Real Consequences of Nominal Wage Rigidity,"
IEW - Working Papers
044, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Goette, Lorenz, 2005. "Robustness and real consequences of nominal wage rigidity," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 779-804, May.
- Ernst Fehr & Lorenz Götte, 2000. "Robustness and Real Consequences of Nominal Wage Rigidity," CESifo Working Paper Series 335, CESifo Group Munich.
- Ernst Fehr & Lorenz Goette, 2004. "Robustness And Real Consequences Of Nominal Wage Rigidity," Macroeconomics 0409025, EconWPA.
- Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March.
- Bell, Brian & Nickell, Stephen & Quintini, Glenda, 2002.
"Wage equations, wage curves and all that,"
Elsevier, vol. 9(3), pages 341-360, July.
- Ernst Fehr & Lorenz Goette, 2007.
"The Robustness and Real Consequences of Nominal Wage Rigidity,"
Kiel Working Papers
1343, Kiel Institute for the World Economy.
- Fehr, Ernst, 2000. "The Robustness and Real Consequences of Nominal Wage Rigidity," CEPR Discussion Papers 2516, C.E.P.R. Discussion Papers.
- 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.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.