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Wage Flexibility in Turbulent Times

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  • International Monetary Fund

Abstract

This paper reviews several methods to measure wage flexibility, and their suitability for evaluating the extent of such flexibility during times of structural change, when wage distributions and wage curves can be particularly volatile. The paper uses nonparametric estimation to capture possible nonlinearities in the wage curve and relaxes the assumption of a stable wage distribution over time by linking the shape of the wage change distribution to macroeconomic variables. The proposed methodology is applied to Polish micro data. The estimates confirm that wages are less elastic in a high-unemployment/low-wage environment. Based on a comparison of actual and counterfactual wage distributions, the effects of nominal wage rigidities on real wages, and thus, on the labor market and the real economy, were limited until 1998, but have been quite significant thereafter.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/134.

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Length: 33
Date of creation: 01 Jul 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/134

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Related research

Keywords: Labor markets; Central and Eastern Europe; wage; unemployment; wages; unemployment rate; local unemployment; unemployment rates; high unemployment; worker; high unemployment rates; low unemployment rates; low unemployment; wage determination; employment; unemployment level; labor force survey; average unemployment rate; average unemployment; wage adjustment; wage increases; wage levels; regional unemployment; unemployment levels; benefits; wage inflation; high unemployment rate; aggregate unemployment; wage level; equilibrium unemployment; wage adjustments; compensation; minimum wages; full employment;

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References

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  1. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  2. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
  3. Winter-Ebmer, Rudolf, 1996. "Wage curve, unemployment duration and compensating differentials," Labour Economics, Elsevier, vol. 3(4), pages 425-434, December.
  4. 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.
  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  6. 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.
  7. repec:fth:prinin:343 is not listed on IDEAS
  8. Kamil Galuscak & Daniel Munich, 2003. "Microfoundations of the Wage Inflation in the Czech Republic," Working Papers 2003/01, Czech National Bank, Research Department.
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Citations

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Cited by:
  1. Van Poeck A. & Veiner M., 2007. "Wage flexibility in the new European Union members: how different from the old?," Working Papers 2007016, University of Antwerp, Faculty of Applied Economics.
  2. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006.

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