How Rigid are Nominal Wages? Evidence and Implications for Germany
AbstractMany of the recent attempts to find evidence of downward nominal wage rigidity in micro data have suffered from a number of problems, including composition bias and the effects of measurement error. In order to avoid these problems we explicitly model the determinants of wage changes and the measurement process that leads to observable earnings changes, thereby directly tackling the question of whether and to which extent downward nominal wage rigidity exists in German micro data. We find a high degree of downward nominal wage rigidity, which for rates of inflation lower than three percent is shown to lead to higher equilibrium unemployment via the generated real wage wedge.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 357.
Length: 34 pages
Date of creation: Sep 2001
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 2003, 105 (4), 619-641
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Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
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Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Other versions of this item:
- Christoph Knoppik & Thomas Beissinger, 2003. "How Rigid are Nominal Wages? Evidence and Implications for Germany," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(4), pages 619-641, December.
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
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