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Downward nominal and real wage rigidity: survey evidence from European firms

Author Info

Listed author(s):
  • Jan Babecký

    (Czech National Bank)

  • Philip Du Caju

    (National Bank of Belgium)

  • Theodora Kosma

    ()

    (Bank of Greece)

  • Martina Lawless

    (Central Bank and Financial Services Authority of Ireland)

  • Julián Messina

    (World Bank and University of Girona)

  • Tairi Rõõm

    (Bank of Estonia)

Abstract

It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. We analyse which firm-level and institutional factors are associated with wage rigidity. Our results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). We also find that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations.

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Paper provided by Bank of Greece in its series Working Papers with number 110.

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Length: 62
Date of creation: Feb 2010
Handle: RePEc:bog:wpaper:110
Contact details of provider: Web page: http://www.bankofgreece.gr

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Keywords: downward nominal wage rigidity; downward real wage rigidity; wage indexation; survey data; European Union;

Other versions of this item:

Find related papers by JEL classification:
  • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
  • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
  • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
  • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
  • P5 - Economic Systems - - Comparative Economic Systems

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Blog mentions

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  1. Are wages really that rigid?
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