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

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Author Info
William T. Dickens
Lorenz Goette
Erica L. Groshen
Steinar Holden
Julian Messina
Mark E. Schweitzer
Jarkko Turunen
Melanie E. Ward

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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.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0620.

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Date of creation: 2006
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Handle: RePEc:fip:fedcwp:0620

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Keywords: Wages

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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 GmbH. [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. 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)
  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. S Nickell & L Nunziata, 2000. "Employment Patterns in OECD Countries," CEP Discussion Papers 0448, Centre for Economic Performance, LSE. [Downloadable!]
  10. 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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  11. 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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(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. Catherine Fuss, 2008. "How do firms adjust their wage bill in Belgium ? A decomposition along the intensive and extensive margins," Research series 200801-31, National Bank of Belgium. [Downloadable!]
  2. Thomas Heckel & Hervé Le Bihan & Jérémi Montornès, 2008. "Sticky wages. Evidence from quarterly microeconomic data," Working Paper Series 893, European Central Bank. [Downloadable!]
  3. Barbara Annicchiarico & Luisa Corrado & Alessandra Pelloni, 2008. " Long-Term Growth and Short-Term Volatility: The Labour Market Nexus," CDMA Working Paper Series 0806, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
    Other versions:
  4. Steinar Holden & Fredrik Wulfsberg, 2007. "Downward nominal wage rigidity in the OECD," Working Paper Series 777, European Central Bank. [Downloadable!]
    Other versions:
  5. tropeano, d & michetti, e, 2008. "exchange rate policy and income distribution in an open developing economy," MPRA Paper 6642, University Library of Munich, Germany. [Downloadable!]
  6. 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:
  7. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2007. "Downward wage rigidity for different workers and firms - an evaluation for Belgium using the IWFP procedure," Working Paper Series 840, European Central Bank. [Downloadable!]
  8. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006. [Downloadable!]
  9. Miquel Clar & Christian Dreger & Raúl Ramos, 2007. "Wage Flexibility and Labour Market Institutions: A Meta-Analysis," IZA Discussion Papers 2581, Institute for the Study of Labor (IZA). [Downloadable!]
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  10. 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!]
  11. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2007. "Downward wage rigidity for different workers and firms : an evaluation for Belgium using the IWFP procedure," Research series 200712-21, National Bank of Belgium. [Downloadable!]
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