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Downward Nominal Wage Rigidity in Canada: Evidence from Micro- Level Data

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  • Dany Brouillette
  • Olena Kostyshyna
  • Natalia Kyui

Abstract

We assess the importance of downward nominal wage rigidity (DNWR) in Canada using both firm- and worker-level microdata. In particular, we analyze employer-level administrative data from the Major Wage Settlements (MWS) and household-based survey data from the Survey of Labour Income Dynamics (SLID). MWS data cover large unionized firms in Canada, while SLID is a rich rotating panel representative of the employed population in Canada. Combining both sources of information allows for a more extensive analysis of DNWR in the Canadian labour market. The results suggest that, on average, the effects of DNWR added about 0.2 to 0.4 percentage points to wage growth between 1994 and 2011; as well, the estimated effects increased in the years following the Great Recession in 2008–09. That includes a higher proportion of workers affected by DNWR (which rose from 16 to 32 per cent) and a larger impact on average wage growth. DNWR’s effects on average wage growth were also much stronger during periods of lower CPI inflation in Canada and are positively related to provincial unemployment rates. Finally, we provide an extensive analysis of the heterogeneity in the effects of DNWR. For example, its impact is more pronounced among smaller firms, lower occupational levels, immigrants and older workers. Overall, population ageing and an increasing proportion of immigrants may continue to increase the effects of DNWR in Canada, while the continuing shift toward service industries, declining unionization rates and the increasing educational attainment of the Canadian population may reduce them.

Suggested Citation

  • Dany Brouillette & Olena Kostyshyna & Natalia Kyui, 2016. "Downward Nominal Wage Rigidity in Canada: Evidence from Micro- Level Data," Staff Working Papers 16-40, Bank of Canada.
  • Handle: RePEc:bca:bocawp:16-40
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    Cited by:

    1. Amjad Naveed & Nisar Ahmad & Rayhaneh Esmaeilzadeh & Amber Naz, 2019. "Self-Employment Dynamics of Immigrants and Natives: Individual-level Analysis for the Canadian Labour Market," Sustainability, MDPI, vol. 11(23), pages 1-22, November.
    2. Joel Wagner, 2018. "Downward nominal wage rigidity in Canada: Evidence against a greasing effect," Canadian Journal of Economics, Canadian Economics Association, vol. 51(3), pages 1003-1028, August.
    3. Dany Brouillette & James Ketcheson & Olena Kostyshyna & Jonathan Lachaine, 2017. "Wage Growth in Canada and the United States: Factors Behind Recent Weakness," Staff Analytical Notes 17-8, Bank of Canada.
    4. Jean‐François Rouillard, 2023. "Credit Crunch and Downward Nominal Wage Rigidities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 889-914, June.
    5. Joel Wagner, 2018. "Downward nominal wage rigidity in Canada: Evidence against a “greasing effect”," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(3), pages 1003-1028, August.
    6. Dany Brouillette & Natalia Kyui, 2017. "Downward Nominal Wage Rigidity, Inflation and Unemployment: New Evidence Using Micro-Level Data," Staff Analytical Notes 17-6, Bank of Canada.

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    More about this item

    Keywords

    Econometric and statistical methods; Labour markets;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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