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Does Downward Nominal Wage Rigidity Dampen Wage Increases?

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  • Stüber, Heiko

    ()
    (Institute for Employment Research (IAB), Nuremberg)

  • Beissinger, Thomas

    ()
    (University of Hohenheim)

Abstract

Focusing on the compression of wage cuts, many empirical studies find a high degree of downward nominal wage rigidity (DNWR). However, the resulting macroeconomic effects seem to be surprisingly weak. This contradiction can be explained within an intertemporal framework in which DNWR not only prevents nominal wage cuts but also induces firms to compress wage increases. We analyze whether a compression of wage increases occurs when DNWR is binding by applying Unconditional Quantile Regression and Seemingly Unrelated Regression to a data set comprising more than 169 million wage changes. We find evidence for a compression of wage increases and only very small effects of DNWR on average real wage growth. The results indicate that DNWR does not provide a strong argument against low inflation targets.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5126.

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Length: 32 pages
Date of creation: Aug 2010
Date of revision:
Publication status: published in: European Economic Review, 2012, 56 (4), 870-887
Handle: RePEc:iza:izadps:dp5126

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Keywords: wage stickiness; wage compression; downward nominal wage rigidity; unconditional quantile regression;

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References

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Citations

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Cited by:
  1. Achatz, Juliane & Trappmann, Mark, 2011. "Arbeitsmarktvermittelte Abgänge aus der Grundsicherung : der Einfluss von personen- und haushaltsgebundenen Barrieren," IAB Discussion Paper 201102, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  2. Dias, Daniel A. & Marques, Carlos Robalo & Martins, Fernando, 2013. "Wage rigidity and employment adjustment at the firm level: Evidence from survey data," Labour Economics, Elsevier, vol. 23(C), pages 40-49.
  3. Stüber, Heiko & Beissinger, Thomas, 2010. "Does downward nominal wage rigidity dampen wage increases?," FZID Discussion Papers 22-2010, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  4. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2013. "The determinants of downward wage rigidity: Some methodological considerations and new empirical evidence," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  5. Dürnberger, Andrea & Drasch, Katrin & Matthes, Britta, 2010. "Kontextgestützte Abfrage in Retrospektiverhebungen: Ein kognitiver Pretest zu Erinnerungsprozessen bei Weiterbildungsereignissen," IAB Discussion Paper 201020, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Stüber, Heiko, 2012. "Are real entry wages rigid over the business cycle? : Empirical evidence for Germany from 1977 to 2009," IAB Discussion Paper 201206, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  7. Schlitte, Friso, 2010. "Local human capital, segregation by skill, and skill-specific employment growth," IAB Discussion Paper 201022, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Labour cost-cutting strategies microeconomic evidence from survey data," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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