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Downward Nominal Wage Rigidity in Italy: Evidence and Consequences

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Author Info
Francesco Devicienti

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Abstract

This paper uses administrative longitudinal micro-data from the Italian Social Security Institute (INPS) to estimate the extent of downward nominal wage rigidity. The determinants of wage changes are explicitly modelled, as is the measurement error deriving from the fact that earnings inclusive of benefits, not hourly wages, are available in the data. Estimates show that the degree of downward nominal wage rigidity is medium/high – between 51% and 68% of all notional wage cuts being prevented by the existence of proportional rigidity. The implications of the estimated nominal wage rigidity for the real side of the economy are also explored.

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Publisher Info
Paper provided by LABORatorio R. Revelli, Centre for Employment Studies in its series LABORatorio R. Revelli Working Papers Series with number 20.

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Length: 58 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:cca:wplabo:20

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Related research
Keywords: Nominal wage rigidity; measurement error; proportional and threshold rigidity models; natural unemployment rate.;

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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. Erica L. Groshen & Mark E. Schweitzer, 1996. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Staff Reports 9, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  2. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June. [Downloadable!] (restricted)
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  3. Erica L. Groshen, 1988. "Why do wages vary among employers?," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 19-38. [Downloadable!]
  4. Bruno Contini & Michelangelo Filippi & Claudio Malpede, 2000. "Safari nella giungla dei salari. Nel Mezzogiorno si lavora di meno?," LABORatorio R. Revelli Working Papers Series 3, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
  5. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
    Other versions:
  6. Giuseppe Bertola & Francine D. Blau & Lawrence M. Kahn, 2001. "Comparative Analysis of Labor Market Outcomes: Lessons for the US from International Long-Run Evidence," NBER Working Papers 8526, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Thomas Beissinger & Christoph Knoppik, 2001. "Downward Nominal Rigidity in West German Earnings, 1975-95," German Economic Review, Blackwell Publishing, vol. 2(4), pages 385-417, November. [Downloadable!] (restricted)
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  9. Knoppik, Christoph & Beissinger, Thomas, 2001. "How Rigid are Nominal Wages? Evidence and Implications for Germany," IZA Discussion Papers 357, Institute for the Study of Labor (IZA). [Downloadable!]
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  10. Steinar Holden, 2002. "The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe," NBER Working Papers 8865, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier. [Downloadable!] (restricted)
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  12. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
  13. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  14. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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  15. Machin, Stephen & Manning, Alan, 1997. "Minimum wages and economic outcomes in Europe," European Economic Review, Elsevier, vol. 41(3-5), pages 733-742, April. [Downloadable!] (restricted)
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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. 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!]
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  2. Thomas Beissinger & Christoph Knoppik, 2006. "Downward Nominal Wage Rigidity in Europe: An Analysis of European Micro Data from the ECHP 1994-2001," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 275/2006, Department of Economics, University of Hohenheim, Germany. [Downloadable!]
    Other versions:
  3. Cornelißen, Thomas & Hübler, Olaf, 2005. "Downward Wage Rigidity and Labour Mobility," IZA Discussion Papers 1523, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Bläs, Barno, 2006. "Ausmaß und reale Konsequenzen nach unten starrer Nominallöhne. Eine Untersuchung für den deutschen Arbeitsmarkt," Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft 416, University of Regensburg, Department of Economics. [Downloadable!]
  5. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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