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Downward nominal wage rigidity in the OECD

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Author Info
Steinar Holden () (University of Oslo, Norges Bank and CESifo, Department of Economics, University of Oslo, Box 1095 Blindern, 0317 Oslo, Norway.)
Fredrik Wulfsberg () (Norges Bank and Federal Reserve Bank of Boston, Box 1179 Sentrum, 0107 Oslo, Norway.)

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Abstract

Recent micro studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries, but the effect on aggregate variables remains disputed. Using data for hourly nominal wages, we explore the existence of DNWR on wages at the industry level in 19 OECD countries, over the period 1973–1999. Based on a novel method, we reject the hypothesis of no DNWR. The fraction of wage cuts prevented due to DNWR has fallen over time, from 61 percent in the 1970s to 16 percent in the late 1990s, but the number of industries affected by DNWR has increased. DNWR is more prevalent when unemployment is low, union density is high, and employment protection legislation is strict. JEL Classification: E3, J3, J5.

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Paper provided by European Central Bank in its series Working Paper Series with number 777.

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Length: 44 pages
Date of creation: Jul 2007
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Handle: RePEc:ecb:ecbwps:20070777

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Keywords: Downward nominal wage rigidity; oecd; employment protection legislation; wage setting.;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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Full references

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. Steinar Holden & Fredrik Wulfsberg, 2007. "How strong is the case for downward real wage rigidity?," Working Papers 07-6, Federal Reserve Bank of Boston. [Downloadable!]
  2. Carlsson, Mikael & Westermark, Andreas, 2007. "Optimal Monetary Policy under Downward Nominal Wage Rigidity," Working Paper Series 206, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  3. Pedro S. Martins, 2008. "Rent Sharing Before and After the Wage Bill," Working Papers 12, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research. [Downloadable!]
    Other versions:
  4. Messina, Julián & Strozzi, Chiara & Turunen, Jarkko, 2008. "Real Wages over the Business Cycle: OECD Evidence from the Time and Frequency Domains," IZA Discussion Papers 3884, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Steinar Holden & Fredrik Wulfsberg, 2007. "Are Real Wages Rigid Downwards?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Fei Peng & W. Stanley Siebert, 2007. "Real Wage Cyclicality in Germany and the UK: New Results Using Panel Data," IZA Discussion Papers 2688, Institute for the Study of Labor (IZA). [Downloadable!]
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