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How strong is the case for downward real wage rigidity?

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Author Info
Steinar Holden
Fredrik Wulfsberg

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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 the 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 DRWR in OECD countries overall, as well as for specific geographical regions and time periods. There is some evidence that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal wage rigidity than for downward real wage rigidity.

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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 07-6.

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Date of creation: 2007
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Handle: RePEc:fip:fedbwp:07-6

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Keywords: Wages;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  9. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March. [Downloadable!]
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  11. Olivier Blanchard & Jordi Gali, 2005. "Real Wage Rigidities and the New Keynesian Model," NBER Working Papers 11806, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. repec:att:wimass:1920415 is not listed on IDEAS
  13. Steinar Holden & Fredrik Wulfsberg, 2007. "Downward nominal wage rigidity in the OECD," Working Paper Series 777, European Central Bank. [Downloadable!]
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  14. David Lebow & Raven Saks & Beth Anne Wilson, 2003. "Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index," Advances in Macroeconomics, Berkeley Electronic Press, vol. 3(1), pages 1117-1117. [Downloadable!] (restricted)
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  19. Ellingsen, Tore & Holden, Steinar, 1995. "Sticky Consumption and Rigid Wages," Working Paper Series in Economics and Finance 62, Stockholm School of Economics.
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  20. Ian M. McDonald & Hugh Sibly, 2005. "The Diamond Of Macroeconomic Equilibria And Non-Inflationary Expansion," Metroeconomica, Blackwell Publishing, vol. 56(3), pages 393-409, 07. [Downloadable!] (restricted)
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  23. Phelps, Edmund S, 1992. "A Review of Unemployment," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1476-90, September. [Downloadable!] (restricted)
  24. 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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  25. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July. [Downloadable!] (restricted)
  26. Holden, Steinar, 1997. "Wage Bargaining, Holdout, and Inflation," Oxford Economic Papers, Oxford University Press, vol. 49(2), pages 235-55, April. [Downloadable!] (restricted)
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  28. Michael W. Elsby, 2006. "Evaluating the Economic Significance of Downward Nominal Wage Rigidity," NBER Working Papers 12611, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  29. Christoph Knoppik & Thomas Beissinger, 2003. "How Rigid are Nominal Wages? Evidence and Implications for Germany," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(4), pages 619-641, December. [Downloadable!] (restricted)
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  30. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March. [Downloadable!] (restricted)
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  31. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April. [Downloadable!] (restricted)
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  32. Cornelißen, Thomas & Hübler, Olaf, 2005. "Downward Wage Rigidity and Labour Mobility," IZA Discussion Papers 1523, Institute for the Study of Labor (IZA). [Downloadable!]
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(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, 2008. "Downward Nominal Wage Rigidity in the OECD," Advances in Macroeconomics, Berkeley Electronic Press, vol. 8(1), pages 1651-1651. [Downloadable!] (restricted)
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