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Evidence on Nominal Wage Rigidity from a Panel of U.S. Manufacturing Industries

  • Ghosal, Vivek
  • Loungani, Prakash

We provide a set of stylized facts on the response of industry nominal wage growth to aggregate and industry-specific influences using annual data for 450 U.S. manufacturing industries over the period 1958 to 1989. We find support for the canonical wage contracts model the response of nominal wage growth to expected inflation is estimated to be between 0.6 and 0.8. This estimate holds for several sectors within manufacturing. The response of nominal wage growth to unexpected inflation is around 0.1, indicating a striking departure from the 'classical' assumption of full indexation. We also find support for the multisector wage indexation models. The estimated profit-sharing elasticity is positive as hypothesized in these models. The instrumental variable estimates of the profit-sharing elasticity are typically between 0.1 and 0.2. Copyright 1996 by Ohio State University Press.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 28 (1996)
Issue (Month): 4 (November)
Pages: 650-68

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Handle: RePEc:mcb:jmoncb:v:28:y:1996:i:4:p:650-68
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