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Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results

  • Andreas Behr
  • Ulrich Pötter
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    We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1995 and 2001. The database used throughout is the User Data Base of the European Community Household Panel (ECHP). The proposed approach is based on the generalized hyperbolic distribution, which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe. Copyright 2009 The Authors. Journal Compilation Verein für Socialpolitik and Blackwell Publishing Ltd. 2009.

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    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 11 (2010)
    Issue (Month): (05)
    Pages: 169-187

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    Handle: RePEc:bla:germec:v:11:y:2010:i::p:169-187
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    1. Holden, Steinar & Wulfsberg, Fredrik, 2007. "Downward nominal wage rigidity in the OECD," Working Paper Series 0777, European Central Bank.
    2. Bauer, Christian, 2000. "Value at risk using hyperbolic distributions," Journal of Economics and Business, Elsevier, vol. 52(5), pages 455-467.
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    7. Agell, Jonas & Lundborg, Per, 1999. "Survey Evidence on Wage Rigidity and Unemployment: Sweden in the 1990s," Working Paper Series 1999:12, Uppsala University, Department of Economics.
    8. Iara, Anna & Traistaru, Iulia, 2004. "How flexible are wages in EU accession countries?," Labour Economics, Elsevier, vol. 11(4), pages 431-450, August.
    9. 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.
    10. Christoph Knoppik & Thomas Beissinger, 2009. "Downward nominal wage rigidity in Europe: an analysis of European micro data from the ECHP 1994–2001," Empirical Economics, Springer, vol. 36(2), pages 321-338, May.
    11. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
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    13. Louis N. Christofides & Man Tuen Leung, 2002. "Nominal Wage Rigidity in Contract Data: A Parametric Approach," University of Cyprus Working Papers in Economics 0210, University of Cyprus Department of Economics.
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