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Downward Nominal Wage Rigidity in Europe (new title: The costs of price stability - downward nominal wage rigidity in Europe)

  • Steinar Holden
  • Fredrik Wulfsberg

This paper explores the existence of downward nominal wage rigidity (DNWR) in the industry sectors of 14 European countries, over the period 1973–1999, using a data set of hourly nominal wages at industry level. Based on a novel nonparametric statistical method, which allows for country and year-specific variation in both the median and the dispersion of industry wage changes, we reject the hypothesis of no DNWR. The fraction of wage cuts prevented due to DNWR has fallen over time, from 70 percent in the 1970s to 20 percent in the 1990s, but the number of industries affected by DNWR has increased. Wage cuts are less likely in countries and years with high inflation, low unemployment, high union density and strict employment protection legislation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1177.

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Date of creation: 2004
Date of revision:
Handle: RePEc:ces:ceswps:_1177
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  13. Orietta DESSY, 2004. "Wage rigidity in Italy," Departmental Working Papers 2004-18, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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  16. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
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  18. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  19. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2003. "Training in Europe," ISER Working Paper Series 2003-23, Institute for Social and Economic Research.
  20. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March.
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