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Reasons for Wage Rigidity in Germany

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  • Wolfgang Franz
  • Friedhelm Pfeiffer

Abstract

This study investigates institutional and economic reasons for downward wage rigidity regarding three occupational skill groups. Based on a survey of 801 firms in Germany and an econometric analysis, we find strong support for explanations based on the effects of labour union contracts and efficiency wages that differ between skill groups. Survey respondents indicate that labour union contracts and implicit contracts are important reasons for wage rigidity for the (less) skilled. Specific human capital and negative signals for new hires are causes of the stickiness of wages for the highly skilled. Compared with US evidence, German firms seem to attach more importance to labour union contracts and specific human capital. Copyright 2006 The Authors; Journal compilation 2006 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd..

Suggested Citation

  • Wolfgang Franz & Friedhelm Pfeiffer, 2006. "Reasons for Wage Rigidity in Germany," LABOUR, CEIS, vol. 20(2), pages 255-284, June.
    • Handle: RePEc:bla:labour:v:20:y:2006:i:2:p:255-284
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    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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