IDEAS home Printed from https://ideas.repec.org/p/zbw/rwidps/12.html
   My bibliography  Save this paper

Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data

Author

Listed:
  • Bauer, Thomas K.
  • Bonin, Holger
  • Sunde, Uwe

Abstract

The paper examines real and nominal wage rigidities.We estimate a switching regime model, in which the observed distribution of individual wage changes, computed from West German register data for 1976-1997, is generated by simultaneous processes of real, nominal or no wage rigidity, and measurement error. The fraction of workers facing wage increases that are due to nominal, but mostly real wage rigidity is substantial.The extent of real rigidity rises with inflation, whereas the opposite holds for nominal rigidity. Overall, the incidence of wage rigidity, which accelerates unemployment growth, is most likely minimized in an environment with moderate inflation.

Suggested Citation

  • Bauer, Thomas K. & Bonin, Holger & Sunde, Uwe, 2004. "Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data," RWI Discussion Papers 12, RWI - Leibniz-Institut für Wirtschaftsforschung.
    • Handle: RePEc:zbw:rwidps:12
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/18563/1/DP_04_012.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas Bauer & Klaus F. Zimmermann, 1999. "Overtime Work and Overtime Compensation in Germany," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(4), pages 419-436, September.
    2. Fitzenberger, Bernd & Franz, Wolfgang, 1999. "Industry-level wage bargaining : a partial rehabilitation ; the German experience," ZEW Discussion Papers 99-33, ZEW - Leibniz Centre for European Economic Research.
    3. 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.
    4. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
    5. Carl M. Campbell III & Kunal S. Kamlani, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 759-789.
    6. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    7. 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.
    8. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages 176-195, March.
    9. Erica L. Groshen & Mark E. Schweitzer, 1994. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Working Papers (Old Series) 9418, Federal Reserve Bank of Cleveland.
    10. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 71-122, National Bureau of Economic Research, Inc.
    11. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084, Elsevier.
    12. Ernst Fehr & Armin Falk, 1999. "Wage Rigidity in a Competitive Incomplete Contract Market," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 106-134, February.
    13. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-837, September.
    14. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
    15. Fitzenberger, Bernd & Franz, Wolfgang, 1999. "Industry-Level Wage Bargaining: A Partial Rehabilitation--The German Experience," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(4), pages 437-457, September.
    16. Thomas Beissinger & Christoph Knoppik, 2001. "Downward Nominal Rigidity in West German Earnings, 1975–95," German Economic Review, Verein für Socialpolitik, vol. 2(4), pages 385-417, November.
    17. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    18. Holden, Steinar, 1994. "Wage bargaining and nominal rigidities," European Economic Review, Elsevier, vol. 38(5), pages 1021-1039, May.
    19. Schnabel, Claus & Wagner, Joachim, 2003. "Determinants of Trade Union Membership in Western Germany: Evidence from Micro Data, 1980-2000," IZA Discussion Papers 708, Institute of Labor Economics (IZA).
    20. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
    21. Louis Christofides & Thanasis Stengos, 2001. "Nominal Wage Rigidity: Non-Parametric Tests Based on Union Data for Canada," CESifo Working Paper Series 535, CESifo.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:rwidps:0012 is not listed on IDEAS
    2. Thomas Bauer & Uwe Sunde & Holger Bonin, 2004. "Dismissal Protection and Worker Flows in Small Establishments," RWI Discussion Papers 0012, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
    3. Thomas Beissinger & Chritoph Knoppik, 2005. "Sind Nominallöhne starr? Neuere Evidenz und wirtschaftspolitische Implikationen," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(2), pages 171-188, May.
    4. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe," Working Paper 2004/5, Norges Bank.
    5. Beissinger Thomas & Knoppik Christoph, 2001. "Downward Nominal Rigidity in West German Earnings, 1975-95," German Economic Review, De Gruyter, vol. 2(4), pages 385-417, December.
    6. Barno Blaes, 2008. "Ausmaß und reale Konsequenzen nach unten starrer Nominallöhne," Working Papers 048, Bavarian Graduate Program in Economics (BGPE).
    7. Smith, Jennifer C., 2002. "Pay Cuts And Morale : A Test Of Downward Nominal Rigidity," The Warwick Economics Research Paper Series (TWERPS) 649, University of Warwick, Department of Economics.
    8. Louis N. Christofides & Thanasis Stengos, 2003. "Wage Rigidity in Canadian Collective Bargaining Agreements," ILR Review, Cornell University, ILR School, vol. 56(3), pages 429-448, April.
    9. Daniel Schäfer & Carl Singleton, 2020. "Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data," Economics working papers 2020-11, Department of Economics, Johannes Kepler University Linz, Austria.
    10. Elsby, Michael W.L., 2009. "Evaluating the economic significance of downward nominal wage rigidity," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 154-169, March.
    11. Böckerman, Petri & Laaksonen, Seppo & Vainiomäki, Jari, 2006. "Micro-level evidence on wage rigidities in Finland," MPRA Paper 1811, University Library of Munich, Germany.
    12. Dany Brouillette & Olena Kostyshyna & Natalia Kyui, 2018. "Downward nominal wage rigidity in Canada: Evidence from micro-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 51(3), pages 968-1002, August.
    13. Cornelissen, Thomas & Hübler, Olaf, 2005. "Downward Wage Rigidity and Labour Mobility," IZA Discussion Papers 1523, Institute of Labor Economics (IZA).
    14. Agell, Jonas & Bennmarker, Helge, 2002. "Wage policy and endogenous wage rigidity: a representative view from the inside," Working Paper Series 2002:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    15. Pierre Fortin & George A. Akerlof & William T. Dickens & George L. Perry, 2002. "Inflation and Unemployment in the U.S. and Canada: A Common Framework," Cahiers de recherche du Département des sciences économiques, UQAM 20-16, Université du Québec à Montréal, Département des sciences économiques.
    16. Fehr, Ernst & Goette, Lorenz, 2005. "Robustness and real consequences of nominal wage rigidity," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 779-804, May.
    17. Park, Seonyoung & Shin, Donggyun, 2017. "The extent and nature of downward nominal wage flexibility: An analysis of longitudinal worker/establishment data from Korea," Labour Economics, Elsevier, vol. 48(C), pages 67-86.
    18. Francesco Devicienti, 2002. "Downward Nominal Wage Rigidity in Italy: Evidence and Consequences," LABORatorio R. Revelli Working Papers Series 20, LABORatorio R. Revelli, Centre for Employment Studies.
    19. Holden Steinar & Wulfsberg Fredrik, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-50, April.
    20. Orietta DESSY, 2004. "Nominal wage flexibility and institutions: preliminary micro-evidence from the Europanel," Departmental Working Papers 2004-17, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    21. M. Ali Choudhary & Saima Mahmood & Sajawal Khan & Waqas Ahmed & Gylfi Zoega, 2013. "Sticky Wages in a Developing Country: Lessons from Structured Interviews in Pakistan," School of Economics Discussion Papers 0213, School of Economics, University of Surrey.

    More about this item

    Keywords

    downward wage rigidity; real effects of inflation; collective bargaining; switching regime model; West Germany;
    All these keywords.

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:rwidps:12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/rwiesde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.