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

Author

Listed:
  • Thomas Bauer
  • Holger Bonin
  • Lorenz Goette
  • Uwe Sunde

Abstract

This article examines real and nominal wage rigidities in West Germany. Using regionally disaggregated register data for 1975-2001, we estimate the extent of both types of wage rigidities from the observed distribution of individual wage changes, taking into account possible measurement error. The fraction of workers facing wage increases that are caused by nominal and particularly real wage rigidity is substantial. The extent of real rigidity rises with inflation and falls with regional unemployment, whereas the opposite holds for nominal rigidity. Overall, the incidence of wage rigidity, which accelerates unemployment growth, is most likely minimised in a moderate inflation environment. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • Thomas Bauer & Holger Bonin & Lorenz Goette & Uwe Sunde, 2007. "Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data," Economic Journal, Royal Economic Society, vol. 117(524), pages 508-529, November.
    • Handle: RePEc:ecj:econjl:v:117:y:2007:i:524:p:f508-f529
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    JEL classification:

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

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