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How wages change - micro evidence from the International Wage Flexibility Project

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Author Info
William T. Dickens () (The Brookings Institution, 1775 Massachusetts Avenue, NW Washington, D.C. 20036, USA.)
Lorenz Götte () (Institute for Empirical Research in Economics, University of Zurich, Blümlisalpstrasse 10, CH-8006 Zürich, Switzerland.)
Erica L. Groshen () (Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, USA.)
Steinar Holden () (University of Oslo, Box 1095 Blindern, 0317 Oslo, Norway.)
Julián Messina () (University of Salerno, Via Ponte don Melillo, 84084 Fisciano (SA), Italy.)
Mark E. Schweitzer () (Federal Reserve Bank of Cleveland, P.O. Box 6387 Cleveland, Ohio 44101-1387, USA.)
Jarkko Turunen () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Melanie E. Ward () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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Abstract

How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals’ earnings in 31 different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries. JEL Classification: E3, J3, J5.

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Paper provided by European Central Bank in its series Working Paper Series with number 697.

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Length: 32 pages
Date of creation: Nov 2006
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Handle: RePEc:ecb:ecbwps:20060697

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Related research
Keywords: Wage setting; Wage change distributions; Downward nominal wage rigidity; Downward real wage rigidity.;

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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. Stephen Nickell & Glenda Quintini, 2003. "Nominal wage rigidity and the rate of inflation," Economic Journal, Royal Economic Society, vol. 113(490), pages 762-781, October. [Downloadable!] (restricted)
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  2. Diego Rodriguez Palenzuela & Gonzalo Camba-Mendez & Juan Angel Garcia, 2003. "Relevant economic issues concerning the optimal rate of inflation," Working Paper Series 278, European Central Bank. [Downloadable!]
  3. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  4. 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. [Downloadable!]
  5. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 1-76. [Downloadable!]
  6. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September. [Downloadable!] (restricted)
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  7. repec:bep:macadv:v:3:y:2003:i:1:p:1117-1117 is not listed on IDEAS
  8. 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. [Downloadable!] (restricted)
  9. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 361-408, October. [Downloadable!] (restricted)
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  10. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March. [Downloadable!] (restricted)
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