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How Rigid Are Nominal-Wage Rates?

Author

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  • Allan Crawford

Abstract

This study examines the effect of nominal-wage rigidities on wage growth in Canada using a hazard model and micro data for union contracts. The hazard model is specified in a way that allows considerable flexibility in the shape of the estimated notional wage-change distribution. This notional distribution is compared with the observed distribution to estimate the net effect of downward nominal-wage rigidity and menu costs on wage growth. Estimates from alternative versions of the model suggest that the net effect on the average annual growth rate of wages was in the range of 0.10 to 0.18 percentage points in the unionized private sector during the low-inflation period of the 1990s.

Suggested Citation

  • Allan Crawford, 2001. "How Rigid Are Nominal-Wage Rates?," Staff Working Papers 01-8, Bank of Canada.
  • Handle: RePEc:bca:bocawp:01-8
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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp01-8.pdf
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    References listed on IDEAS

    as
    1. Far├Ęs, J. & Hogan, S., 2000. "The Employment Costs of Downward Nominal-Wage Rigidity," Staff Working Papers 00-1, Bank of Canada.
    2. Seamus Hogan, 1998. "What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?," Canadian Public Policy, University of Toronto Press, vol. 24(4), pages 513-525, December.
    3. Dupasquier, Chantal & Ricketts, Nicholas, 1998. "Non-Linearities in the Output-Inflation Relationship: Some Empirical Results for Canada," Staff Working Papers 98-14, Bank of Canada.
    4. Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-787, November.
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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.

    More about this item

    Keywords

    Labour markets; Inflation targets;

    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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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