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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..

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9914.2006.00345.x
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Article provided by CEIS in its journal LABOUR.

Volume (Year): 20 (2006)
Issue (Month): 2 (06)
Pages: 255-284

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Handle: RePEc:bla:labour:v:20:y:2006:i:2:p:255-284
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Find related papers by 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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  1. 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.
  2. Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March.
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  4. Bertola, Giuseppe, 1999. "Microeconomic perspectives on aggregate labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 45, pages 2985-3028 Elsevier.
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  7. Malcomson, J., 1998. "Individual employment contracts," Discussion Paper Series In Economics And Econometrics 9804, Economics Division, School of Social Sciences, University of Southampton.
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  11. Knoppik, Christoph & Beissinger, Thomas, 2001. "How Rigid are Nominal Wages? Evidence and Implications for Germany," IZA Discussion Papers 357, Institute for the Study of Labor (IZA).
  12. Dirk Krueger & Krishna B. Kumar, 2004. "Skill-Specific rather than General Education: A Reason for US--Europe Growth Differences?," Journal of Economic Growth, Springer, vol. 9(2), pages 167-207, 06.
  13. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc.
  14. Acemoglu, Daron & Aghion, Philippe & Violante, Giovanni L., 2001. "Deunionization, technical change and inequality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 229-264, December.
  15. Fehr, Ernst, 1990. "Cooperation, Harassment, and Involuntary Unemployment: Comment," American Economic Review, American Economic Association, vol. 80(3), pages 624-30, June.
  16. Alan S. Blinder & Don H. Choi, 1989. "A Shred of Evidence on Theories of Wage Stickiness," NBER Working Papers 3105, National Bureau of Economic Research, Inc.
  17. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
  18. Harhoff, Dietmar & Stahl, Konrad & Woywode, Michael, 1998. "Legal Form, Growth and Exit of West German Firms--Empirical Results for Manufacturing, Construction, Trade and Service Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 453-88, December.
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