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Are Real Wages Rigid Downwards?

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  • Steinar Holden
  • Fredrik Wulfsberg

Abstract

This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973–1999, using data for hourly nominal earnings at industry level. Based on a nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we find evidence of some downward rigidity of real wages in OECD countries overall, as well as for regions and time periods. There is some evidence that real wage cuts are less prevalent under strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal than for downward real wage rigidity.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-05/cesifo1_wp1983.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1983.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1983

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Keywords: downward real wage rigidity; OECD; employment protection legislation; wage setting;

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References

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  16. Danthine, Jean-Pierre & Kurmann, Andre, 2004. "Efficiency Wages Revisited: The Internal Reference Perspective," CEPR Discussion Papers 4503, C.E.P.R. Discussion Papers.
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  20. Beth Anne Wilson, 1999. "Wage rigidity: a look inside the firm," Finance and Economics Discussion Series 1999-22, Board of Governors of the Federal Reserve System (U.S.).
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  25. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie Ward, 2006. "The interaction of labor markets and inflation: analysis of micro data from the International Wage Flexibility Project," Proceedings, Federal Reserve Bank of San Francisco.
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Citations

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Cited by:
  1. Markus Knell & Alfred Stiglbauer, 2009. "The Impact of Reference Norms on Inflation Persistence When Wages are Staggered," Working Papers 153, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Spruk, Rok, 2010. "Iceland's Economic and Financial Crisis: Causes, Consequences and Implications," MPRA Paper 29972, University Library of Munich, Germany.
  3. Amegashie, J. Atsu & Ouattara, Bazoumanna & Strobl, Eric, 2007. "Moral Hazard and the Composition of Transfers: Theory with an Application to Foreign Aid," MPRA Paper 3158, University Library of Munich, Germany, revised 06 May 2007.
  4. Harilaos Mertzanis, 2009. "Efficiency Wages, Inflation And Growth," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 131-151, December.

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