IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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

  • 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)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2010110.pdf
File Function: Full Text
Download Restriction: no

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

as
in new window

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

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Paul Oyer, 2005. "Salary or Benefits?," NBER Working Papers 11817, National Bureau of Economic Research, Inc.
  2. Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March.
  3. Babecky, Jan & Caju, Philip Du & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2009. "Downward nominal and real wage rigidity : survey evidence from European firms," Policy Research Working Paper Series 5159, The World Bank.
  4. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
  5. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe," Working Paper 2004/5, Norges Bank.
  6. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2006. "How wages change: micro evidence from the International Wage Flexibility Project," Working Paper 0620, Federal Reserve Bank of Cleveland.
  7. Du Caju, Philip & Gautier, Erwan & Momferatou, Daphne & Ward-Warmedinger, Melanie E., 2008. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," IZA Discussion Papers 3867, Institute for the Study of Labor (IZA).
  8. Joseph G. Altonji & Paul J. Devereux, 1999. "The Extent and Consequences of Downward Nominal Wage Rigidity," NBER Working Papers 7236, National Bureau of Economic Research, Inc.
  9. Franz, Wolfgang & Pfeiffer, Friedhelm, 2006. "Reasons for Wage Rigidity in Germany," IZA Discussion Papers 2017, Institute for the Study of Labor (IZA).
  10. Du Caju, Philip & Fuss, Catherine & Wintr, Ladislav, 2007. "Downward wage rigidity for different workers and firms: an evaluation for Belgium using the IWFP procedure," Working Paper Series 0840, European Central Bank.
  11. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
  12. Yu-Fu Chen & Michael Funke, 2003. "Labour Demand in Germany: An Assessment of Non- Wage Labour Costs," Dundee Discussion Papers in Economics 154, Economic Studies, University of Dundee.
  13. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  14. Holden, Steinar & Wulfsberg, Fredrik, 2007. "Downward nominal wage rigidity in the OECD," Working Paper Series 0777, European Central Bank.
  15. Campbell, Carl M, III, 1997. "The Variation in Wage Rigidity by Occupation and Union Status in the US," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 133-47, February.
  16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  17. Yu-Fu Chen & Michael Funke, 2005. "Non-Wage Labour Costs, Policy Uncertainty and Labour Demand - a Theoretical Assessment," Quantitative Macroeconomics Working Papers 20511, Hamburg University, Department of Economics.
  18. Masanori Hashimoto & Ben T. Yu, 1980. "Specific Capital, Employmemt Contracts, and Wage Rigidity," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 536-549, Autumn.
  19. Alan S. Blinder & Don H. Choi, 1989. "A Shred of Evidence on Theories of Wage Stickiness," NBER Working Papers 3105, National Bureau of Economic Research, Inc.
  20. Holden, Steinar & Wulfsberg, Fredrik, 2009. "How strong is the macroeconomic case for downward real wage rigidity?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 605-615, May.
  21. Du Caju, Philip & Fuss, Catherine & Wintr, Ladislav, 2009. "Understanding sectoral differences in downward real wage rigidity: workforce composition, institutions, technology and competition," Working Paper Series 1006, European Central Bank.
  22. Carlsson, Mikael & Westermark, Andreas, 2007. "Optimal Monetary Policy under Downward Nominal Wage Rigidity," Working Paper Series 2007:15, Uppsala University, Department of Economics.
  23. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  24. Oswald, Andrew J, 1986. "Unemployment Insurance and Labor Contracts under Asymmetric Information: Theory and Facts," American Economic Review, American Economic Association, vol. 76(3), pages 365-77, June.
  25. Agell, Jonas & Lundborg, Per, 1993. "Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Working Paper Series 380, Research Institute of Industrial Economics.
  26. Jonas Agell & Per Lundborg, 2003. "Survey Evidence on Wage Rigidity and Unemployment: Sweden in the 1990s," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 15-30, 03.
  27. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  28. Goette, Lorenz & Sunde, Uwe & Bauer, Thomas K., 2007. "Wage rigidity: Measurement, causes and consequences," Munich Reprints in Economics 20448, University of Munich, Department of Economics.
  29. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
  30. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
  31. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-40, September.
  32. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe (new title: The costs of price stability - downward nominal wage rigidity in Europe)," CESifo Working Paper Series 1177, CESifo Group Munich.
  33. Lebow David E & Saks Raven E & Wilson Beth Anne, 2003. "Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-30, October.
  34. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  35. Stephan Fahr & Frank Smets, 2010. "Downward Wage Rigidities and Optimal Monetary Policy in a Monetary Union," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 812-840, December.
  36. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  37. Bewley, Truman, 2004. "Fairness, Reciprocity, and Wage Rigidity," IZA Discussion Papers 1137, Institute for the Study of Labor (IZA).
  38. Steinar Holden, 2004. "The Costs of Price Stability: Downward Nominal Wage Rigidity in Europe," Economica, London School of Economics and Political Science, vol. 71(281), pages 183-208, 05.
  39. Carlsson Mikael & Westermark Andreas, 2008. "Monetary Policy under Downward Nominal Wage Rigidity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-61, October.
  40. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  41. Small, Kenneth A & Hsiao, Cheng, 1985. "Multinomial Logit Specification Tests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 619-27, October.
  42. Philip Vermeulen, 2006. "Employment stickiness in small manufacturing firms," Computing in Economics and Finance 2006 144, Society for Computational Economics.
  43. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Economic Logic blog

When requesting a correction, please mention this item's handle: RePEc:bog:wpaper:110. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christina Tsochatzi)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.