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How Rigid are Nominal Wages? Evidence and Implications for Germany

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  • Christoph Knoppik
  • Thomas Beissinger

Abstract

Many recent attempts to find evidence on downward nominal wage rigidity in micro data have suffered from problems such as composition bias and the effects of measurement error. In this paper, a model of proportional downward nominal wage rigidity is developed which avoids these problems by taking into account the determinants of wage changes and the measurement process that leads to observable earnings changes. We find a high degree of downward nominal wage rigidity in German micro data. Its real implications for individual expected wage growth, the aggregate wage level and equilibrium unemployment have marked effects for rates of inflation lower than 3 percent.

Suggested Citation

  • Christoph Knoppik & Thomas Beissinger, 2003. "How Rigid are Nominal Wages? Evidence and Implications for Germany," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(4), pages 619-641, December.
    • Handle: RePEc:bla:scandj:v:105:y:2003:i:4:p:619-641
    DOI: 10.1111/j.0347-0520.2003.00006.x
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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