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How Robust are Nominal Wage Rigidities?

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Author Info
Ernst Fehr (University of Zurich)
Lorenz Goette (University of Zurich)

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Abstract

Several studies indicate that firms are reluctant to cut nominal wages during periods of relatively high nominal per capita GDP growth. It has been argued, however, that in an environment with a low nominal per capita GDP growth, i.e., when nominal wage cuts become customary, firms would no longer hesitate to cut nominal pay. To examine this argument we use data from Switzerland where nominal GDP growth has been very low between 1991 and 1997. It turns out that the rigidity of nominal wages is a robust phenomenon that does not vanish but even increases as inflation decreases. Nominal wage rigidity constitutes a considerable obstacle to real wage adjustments. Our estimates indicate that wage rigidity is almost complete for full-time workers who stay with the same employer, but we find little evidence of nominal rigidities for workers who switch employers. We also find evidence that, in the absence of downward nominal rigidity, real wages would indeed be quite responsive to unemployment.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0071.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0071

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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.:

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    Other versions:
  2. Shafir, Eldar & Diamond, Peter & Tversky, Amos, 1997. "Money Illusion," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 341-74, May.
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    Other versions:
  4. 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)
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    Other versions:
  6. Blanchflower, David G & Oswald, Andrew J, 1990. " The Wage Curve," Scandinavian Journal of Economics, Blackwell Publishing, vol. 92(2), pages 215-35.
    Other versions:
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
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    Other versions:
  8. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366 Elsevier. [Downloadable!] (restricted)
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    Other versions:
  13. Steinar Holden, 1999. "Renegotiation and the Efficiency of Investments," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 106-119, Spring. [Downloadable!] (restricted)
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  16. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December. [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. Bewley, Truman, 2004. "Fairness, Reciprocity, and Wage Rigidity," IZA Discussion Papers 1137, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Truman F. Bewley, 2002. "Fairness, Reciprocity, and Wage Rigidity," Cowles Foundation Discussion Papers 1383, Cowles Foundation, Yale University. [Downloadable!]
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