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Lessons of the Wage Dynamics Network

  • G. de Walque

    (National Bank of Belgium, Research Department)

  • M. Druant

    (National Bank of Belgium, Research Department)

  • Ph. Du Caju

    (National Bank of Belgium, Research Department)

  • C. Fuss

    (National Bank of Belgium, Research Department)

The Wage Dynamics Network (WDN) is a temporary research network with the main objective of identifying the characteristics of wage dynamics and drawing conclusions from them in monetary policy terms. The paper presents the main findings of this research work. Notably, the intersectoral wage differential can be partly attributed to differences in profitability and the degree of competition to which the sectors are exposed. Nominal wages are adjusted less frequently than prices and adjustments generally tend to be made at regular intervals rather than in response to the economic climate. Wage rigidity not only affects existing workers, but also new recruits. The euro area, and Belgium in particular, is marked more by rigid real wages than nominal wages. Real wage rigidity implies a low optimal inflation rate and tends to complicate the conduct of monetary policy since it triggers greater fluctuations in output and employment and makes inflation more persistent. Furthermore, in a monetary union, countries with higher real wage rigidity suffer a loss of competitiveness in the event of negative productivity shocks. Institutions underlying wagesetting generally play an important role in the way in which firms and economies react to shocks. The heterogeneity of these institutions within the euro area therefore presents a real challenge for monetary policy.

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Article provided by National Bank of Belgium in its journal Economic Review.

Volume (Year): (2010)
Issue (Month): i (June)
Pages: 55-75

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Handle: RePEc:nbb:ecrart:y:2010:m:june:i:i:p:55-75
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  1. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward nominal and real wage rigidity: survey evidence from European firms," Working Papers 110, Bank of Greece.
  2. Julián Messina & Philip Du Caju & Cláudia Filipa Duarte & Niels Lynggård Hansen & Mario Izquierdo, 2010. "The incidence of nominal and real wage rigidity : An individual-based sectoral approach," Working Paper Research 191, National Bank of Belgium.
  3. Carneiro, Anabela & Guimaraes, Paulo & Portugal, Pedro, 2009. "Real Wages and the Business Cycle: Accounting for Worker and Firm Heterogeneity," IZA Discussion Papers 4174, Institute for the Study of Labor (IZA).
  4. Philip Du Caju & Gábor Kátay & Ana Lamo & Daphne Nicolitsas & Steven Poelhekke, 2010. "Inter-industry wage differentials in EU countries: what do cross-country time varying data add to the picture?," Working Papers 121, Bank of Greece.
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  10. Philip Du Caju & Erwan Gautier & Daphne Momferatu & Melanie Ward-Warmedinger, 2009. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 57-108, Winter.
  11. Du Caju, Philip & Fuss, Catherine & Wintr, Ladislav, 2007. "Downward wage rigidity for different workers and firms: an evaluation for Belgium using the IWFP procedure," Working Paper Series 0840, European Central Bank.
  12. Martine Druant & Silvia Fabiani & Gabor Kezdig & Ana Lamo & Fernando Martins & Roberto Sabbatini, 2009. "How are firms' wages and prices linked: survey evidence in Europe," Temi di discussione (Economic working papers) 725, Bank of Italy, Economic Research and International Relations Area.
  13. Grégory de Walque & Juan Jimeno & Michael Krause & Hervé Le Bihan & Stephen Millard & Frank Smets, 2010. "Some Macroeconomic and Monetary Policy Implications of New Micro Evidence on Wage Dynamics," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 506-513, 04-05.
  14. Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Inter-industry wage differentials: How much does rent sharing matter?," ULB Institutional Repository 2013/138898, ULB -- Universite Libre de Bruxelles.
  15. Ana Rute Cardoso & Miguel Portela, 2009. "Micro Foundations for Wage Flexibility: Wage Insurance at the Firm Level," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 29-50, 03.
  16. Galuščák, Kamil & Keeney, Mary & Nicolitsas, Daphne & Smets, Frank & Strzelecki, Pawel & Vodopivec, Matija, 2010. "The determination of wages of newly hired employees: survey evidence on internal versus external factors," Working Paper Series 1153, European Central Bank.
  17. Christoffel, Kai & Costain, James & de Walque, Gregory & Kuester, Keith & Linzert, Tobias & Millard, Stephen & Pierrard, Olivier, 2009. "Inflation dynamics with labour market matching: assessing alternative specifications," Bank of England working papers 375, Bank of England.
  18. de Walque, Gregory & Pierrard, Olivier & Sneessens, Henri & Wouters, Raf, 2009. "Sequential bargaining in a new-Keynesian model with frictional unemployment and staggered wage negotiation," Working Paper Series 1007, European Central Bank.
  19. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  20. M. Druant & Ph. Du Caju & Ph. Delhez, 2008. "Results of the Bank’s survey of wage-setting in Belgian firms," Economic Review, National Bank of Belgium, issue iii, pages 49-73, September.
  21. Fuss, Catherine, 2009. "What is the most flexible component of wage bill adjustment? Evidence from Belgium," Labour Economics, Elsevier, vol. 16(3), pages 320-329, June.
  22. Fuss, Catherine & Wintr, Ladislav, 2009. "Rigid labour compensation and flexible employment? Firm-level evidence with regard to productivity for Belgium," Working Paper Series 1021, European Central Bank.
  23. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  24. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series 0722, European Central Bank.
  25. Knell, Markus, 2013. "Nominal and real wage rigidities. In theory and in Europe," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 89-105.
  26. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  27. Du Caju, Philip & Fuss, Catherine & Wintr, Ladislav, 2009. "Understanding sectoral differences in downward real wage rigidity: workforce composition, institutions, technology and competition," Working Paper Series 1006, European Central Bank.
  28. Emmanuel Dhyne & Benoit Mahy, 2009. "The use of fixed-term contracts and the labour adjustment in Belgium," Working Paper Research 169, National Bank of Belgium.
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