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

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  • William T. Dickens

    ()
    (The Brookings Institution, Washington, D.C.)

  • Lorenz Goette

    ()
    (University of Zurich)

  • Erica L. Groshen

    ()
    (Federal Reserve Bank of New York
    Institute for the Study of Labor (IZA), Bonn)

  • Steinar Holden

    ()
    (University of Oslo
    Research Fellow, Center for Economic Studies--Information and Forschung Institute (CESifo), Munich)

  • Julian Messina

    ()
    (European Central Bank
    Universitat de Girona, Italy
    Centre for Studies in Economics and Finance (CSEF), Università di Salerno, Italy)

  • Mark E. Schweitzer

    ()
    (Federal Reserve Bank of Cleveland, Ohio)

  • Jarkko Turunen

    ()
    (European Central Bank)

  • Melanie E. Ward

    ()
    (European Central Bank
    Institute for the Study of Labor (IZA), Bonn)

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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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 96.

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Length: 34 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:nbb:reswpp:200610-8

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Keywords: Wage setting; Wage change distributions; Downward nominal wage rigidity; Downward real wage rigidity;

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  1. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Departmental Working Papers 2002-16, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  2. 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(1), pages 1-76.
  3. Stephen Nickell & Glenda Quintini, 2001. "Nominal Wage Rigidity and the Rate of Inflation," CEP Discussion Papers dp0489, Centre for Economic Performance, LSE.
  4. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March.
  5. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series 1252, CESifo Group Munich.
  6. Knoppik, Christoph & Beissinger, Thomas, 2005. "Downward Nominal Wage Rigidity in Europe: An Analysis of European Micro Data from the ECHP 1994-2001," IZA Discussion Papers 1492, Institute for the Study of Labor (IZA).
  7. 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.
  8. Rodriguez-Palenzuela, Diego & Camba-Méndez, Gonzalo & García, Juan Angel, 2003. "Relevant economic issues concerning the optimal rate of inflation," Working Paper Series 0278, European Central Bank.
  9. Stephen Nickell & Luca Nunziata, 2000. "Employment Patterns in OECD Countries," CEP Discussion Papers dp0448, Centre for Economic Performance, LSE.
  10. Lebow David E & Saks Raven E & Wilson Beth Anne, 2003. "Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-30, October.
  11. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
  12. 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.
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