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The incidence of nominal and real wage rigidity : An individual-based sectoral approach

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Author Info

  • Julián Messina

    ()
    (World Bank
    University of Girona)

  • Philip Du Caju

    ()
    (National Bank of Belgium, Research Department)

  • Cláudia Filipa Duarte

    ()
    (Banco de Portugal)

  • Niels Lynggård Hansen

    ()
    (Danmarks Nationalbank)

  • Mario Izquierdo

    ()
    (Banco de España)

Abstract

This paper presents estimates based on individual data on downward nominal and real wage rigidities for thirteen sectors in Belgium, Denmark, Spain and Portugal. Our methodology follows the approach recently developed for the International Wage Flexibility Project, whereby resistance to nominal and real wage cuts is measured through departures of observed individual wage-change histograms from an estimated counterfactual wage-change distribution that would have prevailed in the absence of any rigidity. We evaluate the role of worker and firm characteristics in shaping wage rigidities. We also confront our estimates of wage rigidities with structural features of the labour markets studied, such as the wage bargaining level, variable pay policy and the degree of product market competition. We find that the use of firm-level collective agreements in countries with rather centralised wage formation reduces the degree of real wage rigidity. This finding suggests that some degree of decentralisation within centralised countries allows firms to adjust wages downwards, when business conditions take a turn for the worse

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File URL: http://www.nbb.be/doc/oc/repec/reswpp/wp191En.pdf
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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 191.

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Length: 28 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:nbb:reswpp:201006-30

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Keywords: wage rigidity; wage-bargaining institutions;

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  1. Du Caju, Philip & Fuss, Catherine & Wintr, Ladislav, 2009. "Understanding sectoral differences in downward real wage rigidity: workforce composition, institutions, technology and competition," Working Paper Series 1006, European Central Bank.
  2. Du Caju, Ph. & Gautier, E. & Momferatou, D. & Ward-Warmedinger, M., 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working papers 228, Banque de France.
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