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Are real wages rigid downwards?

  • Steinar Holden

    (Norges Bank (Central Bank of Norway) University of Oslo and CESifo Department of Economics, University of Oslo)

  • Fredrik Wulfsberg

    (Norges Bank (Central Bank of Norway) and Federal Reserve Bank of Boston)

This paper explores the existence of downward real wage rigidity (drwr) in 19 OECD countries, over the period 1973–1999, using data for hourly nominal earnings at industry level. Based on a nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we find evidence of some downward rigidity of real wages in oecd countries overall, as well as for regions and time periods. There is some evidence that real wage cuts are less prevalent under strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal than for downward real wage rigidity.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2007/WP-20071/
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Paper provided by Norges Bank in its series Working Paper with number 2007/01.

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Length: 44 pages
Date of creation: 11 Apr 2007
Date of revision:
Handle: RePEc:bno:worpap:2007_01
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  19. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
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  23. Danthine, Jean-Pierre & Kurmann, Andre, 2004. "Efficiency Wages Revisited: The Internal Reference Perspective," CEPR Discussion Papers 4503, C.E.P.R. Discussion Papers.
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  25. John C. Driscoll & Steinar Holden, 2004. "Fairness and Inflation Persistence," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 240-251, 04/05.
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