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Employment Effects Of Nominal-Wage Rigidity: An Examination Using Wage-Settlements Data

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  • Faruqui, Umar Ahmed

Abstract

The argument advocating a moderate level of inflation based on the downward nominal-wage rigidity (DNWR) hypothesis rests on three factors: its presence, extent, and negative impact in the labour market. This paper focuses on the employment effect of DNWR. It reviews the evidence presented by Simpson, Cameron, and Hum (1998), in light of a potential bias problem associated with their reduced-form model. We describe modifications to their employment model that aim to better isolate the effects of DNWR on employment growth. Analysis shows that empirical evidence in Simpson, Cameron, and Hum (1998) is sensitive to model specification. In contrast to Simpson, Cameron, and Hum (1998), who found—economically and statistically—significant employment costs for DNWR, in most of our specifications DNWR has no significant effect on employment growth.

Suggested Citation

  • Faruqui, Umar Ahmed, 2000. "Employment Effects Of Nominal-Wage Rigidity: An Examination Using Wage-Settlements Data," Staff Working Papers 00-14, Bank of Canada.
  • Handle: RePEc:bca:bocawp:00-14
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    References listed on IDEAS

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    1. Don Coletti & Brian O'Reilly, 1998. "Lower inflation: Benefits and costs," Bank of Canada Review, Bank of Canada, vol. 1998(Autumn), pages 3-21.
    2. Pierre Fortin, 1991. "The Phillips Curve, Macroeconomic Policy, and the Welfare of Canadians," Canadian Journal of Economics, Canadian Economics Association, vol. 24(4), pages 774-803, November.
    3. Farès, J. & Hogan, S., 2000. "The Employment Costs of Downward Nominal-Wage Rigidity," Staff Working Papers 00-1, Bank of Canada.
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    Cited by:

    1. Castellanos, Sara G. & Garcia-Verdu, Rodrigo & Kaplan, David S., 2004. "Nominal wage rigidities in Mexico: evidence from social security records," Journal of Development Economics, Elsevier, vol. 75(2), pages 507-533, December.
    2. Pierre Fortin & George A. Akerlof & William T. Dickens & George L. Perry, 2002. "Inflation and Unemployment in the U.S. and Canada: A Common Framework," Cahiers de recherche du Département des sciences économiques, UQAM 20-16, Université du Québec à Montréal, Département des sciences économiques.

    More about this item

    Keywords

    Labour markets;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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