IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/20091006.html
   My bibliography  Save this paper

Understanding sectoral differences in downward real wage rigidity: workforce composition, institutions, technology and competition

Author

Listed:
  • Du Caju, Philip
  • Fuss, Catherine
  • Wintr, Ladislav

Abstract

This paper examines whether differences in wage rigidity across sectors can be explained by differences in workforce composition, competition, technology and wage-bargaining institutions. We adopt the measure of downward real wage rigidity (DRWR) developed by Dickens and Goette (2006) and rely on a large administrative matched employer-employee dataset for Belgium over the period 1990-2002. Firstly, our results indicate that DRWR is significantly higher for white-collar workers and lower for older workers and for workers with higher earnings and bonuses. Secondly, beyond labour force composition effects, sectoral differences in DRWR are related to competition, firm size, technology and wage bargaining institutions. We find that wages are more rigid in more competitive sectors, in labour-intensive sectors, and in sectors with predominant centralised wage setting at the sector level as opposed to firm-level wage agreements. JEL Classification: J31

Suggested Citation

  • 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.
  • Handle: RePEc:ecb:ecbwps:20091006
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1006.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Galuscak, Kamil & Keeney, Mary & Nicolitsas, Daphne & Smets, Frank & Strzelecki, Pawel & Vodopivec, Matija, 2012. "The determination of wages of newly hired employees: Survey evidence on internal versus external factors," Labour Economics, Elsevier, pages 802-812.
    2. J.A.F. Machado & J.M.C. Santos Silva, 2003. "Identification with averaged data and implications for hedonic regression studies," Econometrics 0303002, EconWPA.
    3. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.
    4. David Card & Sara De La Rica, 2006. "Firm-Level Contracting and the Structure of Wages in Spain," ILR Review, Cornell University, ILR School, vol. 59(4), pages 573-592, July.
    5. 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.
    6. Ladislav Wintr, 2008. "Some Evidence On Late Bidding In Ebay Auctions," Economic Inquiry, Western Economic Association International, vol. 46(3), pages 369-379, July.
    7. Philip Vermeulen & Daniel A. Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2012. "Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1631-1650, December.
    8. 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.
    9. Fehr, Ernst & Goette, Lorenz, 2005. "Robustness and real consequences of nominal wage rigidity," Journal of Monetary Economics, Elsevier, pages 779-804.
    10. Filippo Altissimo & Laurent Bilke & Andrew Levin & Thomas Mathä & Benoit Mojon, 2006. "Sectoral and Aggregate Inflation Dynamics in the Euro Area," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 585-593, 04-05.
    11. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, pages 993-1008.
    12. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, pages 884-910.
    13. repec:adr:anecst:y:1996:i:41-42 is not listed on IDEAS
    14. Campbell, Carl III, 1989. "Sectoral wage rigidity in the Canadian and French economies," European Economic Review, Elsevier, vol. 33(9), pages 1727-1749, December.
    15. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2007. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 195-214, Spring.
    16. Philip Vermeulen & Daniel A. Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2012. "Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1631-1650, December.
    17. Rebekka Christopoulou & Philip Vermeulen, 2012. "Markups in the Euro area and the US over the period 1981–2004: a comparison of 50 sectors," Empirical Economics, Springer, pages 53-77.
    18. Holden Steinar & Wulfsberg Fredrik, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-50.
    19. Gerlach, Knut & Stephan, Gesine, 2005. "Wage distributions by wage-setting regime," IAB Discussion Paper 200509, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    20. Jan Boone, 2000. "Competitive Pressure: The Effects on Investments in Product and Process Innovation," RAND Journal of Economics, The RAND Corporation, pages 549-569.
    21. 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.
    22. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2012. "Downward Wage Regidity for Different Workers and Firms," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(1), pages 5-32.
    23. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
    24. Dell'Aringa, Carlo & Lucifora, Claudio, 1994. "Collective bargaining and relative earnings in Italy," European Journal of Political Economy, Elsevier, vol. 10(4), pages 727-747, December.
    25. Catherine Fuss, 2008. "How do firms adjust their wage bill in Belgium ? A decomposition along the intensive and extensive margins," Working Paper Research 127, National Bank of Belgium.
    26. Boone, J. & van Ours, J.C. & van der Wiel, H.P., 2007. "How (Not) to Measure Competition," Discussion Paper 2007-014, Tilburg University, Tilburg Law and Economic Center.
    27. Holden Steinar & Wulfsberg Fredrik, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-50.
    28. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, February.
    29. Miquel Clar & Christian Dreger & Raúl Ramos, 2007. "Wage Flexibility and Labour Market Institutions: A Meta-Analysis," Kyklos, Wiley Blackwell, vol. 60(2), pages 145-163, May.
    30. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, pages 433-444.
    31. 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 133-147, February.
    32. Julio J. Rotemberg, 2008. "Cyclical Wages in a Search-and-Bargaining Model with Large Firms," NBER Chapters,in: NBER International Seminar on Macroeconomics 2006, pages 65-114 National Bureau of Economic Research, Inc.
    33. Jan Boone, 2000. "Competitive Pressure: The Effects on Investments in Product and Process Innovation," RAND Journal of Economics, The RAND Corporation, pages 549-569.
    34. Boone, J. & van Ours, J.C. & van der Wiel, H.P., 2007. "How (Not) to Measure Competition," Discussion Paper 2007-32, Tilburg University, Center for Economic Research.
    35. Joseph E. Stiglitz, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC's: The Labor Turnover Model," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 194-227.
    36. Carl Campbell, 1991. "Tests of efficiency wage theory and contract theory with disaggregated data from the U.S," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 98-118.
    37. David Cornille & Maarten Dossche, 2008. "Some Evidence on the Adjustment of Producer Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 489-518, September.
    38. Diego R. Palenzuela & Juan F. Jimeno, 1996. "Wage Drift in Collective Bargaining at the Firm Level: Evidence from Spain," Annals of Economics and Statistics, GENES, pages 187-206.
    39. 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 526-538, June.
    40. repec:adr:anecst:y:1996:i:41-42:p:08 is not listed on IDEAS
    41. Wolfgang Franz & Friedhelm Pfeiffer, 2006. "Reasons for Wage Rigidity in Germany," LABOUR, CEIS, vol. 20(2), pages 255-284, June.
    42. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
    43. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2007. "Downward wage rigidity for different workers and firms : an evaluation for Belgium using the IWFP procedure," Working Paper Research 124, National Bank of Belgium.
    44. Philip Du Caju & Catherine Fuss & Ladislav Wintr, 2007. "Downward wage rigidity for different workers and firms : an evaluation for Belgium using the IWFP procedure," Working Paper Research 124, National Bank of Belgium.
    45. Agell, Jonas & Bennmarker, Helge, 2007. "Wage incentives and wage rigidity: A representative view from within," Labour Economics, Elsevier, vol. 14(3), pages 347-369, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marianna Cervena, 2012. "Base Wage Rigidities: Evidence From a Survey of Slovak Firms," Working and Discussion Papers WP 3/2012, Research Department, National Bank of Slovakia.
    2. Julián Messina & Cláudia Filipa Duarte & Mario Izquierdo & Philip Du Caju & Niels Lynggård Hansen, 2010. "The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 487-496, 04-05.
    3. Patrick Lünnemann & Ladislav Wintr, 2010. "Downward wage rigidity and automatic wage indexation: Evidence from monthly micro wage data," BCL working papers 48, Central Bank of Luxembourg.
    4. Pierpaolo Benigno & Luca Antonio Ricci & Paolo Surico, 2015. "Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility," The Review of Economics and Statistics, MIT Press, pages 698-709.
    5. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2009. "The margins of labour cost adjustment: survey evidence from european firms," Working Papers 108, Bank of Greece.
    6. Edo Anthony, 2015. "The Impact of Immigration on Native Wages and Employment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1151-1196.
    7. Kátay, Gábor, 2011. "Downward wage rigidity in Hungary," Working Paper Series 1372, European Central Bank.
    8. Druant, Martine & Fabiani, Silvia & Kezdi, Gabor & Lamo, Ana & Martins, Fernando & Sabbatini, Roberto, 2012. "Firms' price and wage adjustment in Europe: Survey evidence on nominal stickiness," Labour Economics, Elsevier, vol. 19(5), pages 772-782.
    9. G. de Walque & M. Druant & Ph. Du Caju & C. Fuss, 2010. "Lessons of the Wage Dynamics Network," Economic Review, National Bank of Belgium, pages 55-75.
    10. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 884-910, December.
    11. Alexander V. Larin, 2014. "Downward Nominal Wage Rigidity: Unions’ Merit Or Firms’ Foresight?," HSE Working papers WP BRP 86/EC/2014, National Research University Higher School of Economics.
    12. Dhyne, Emmanuel & Druant, Martine, 2010. "Wages, labor or prices: how do firms react to shocks?," Working Paper Series 1224, European Central Bank.
    13. Daniel Dias & Carlos Marques & Fernando Martins, 2015. "A replication note on downward nominal and real wage rigidity: survey evidence from European firms," Empirical Economics, Springer, pages 1143-1152.
    14. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Identifying the determinants of downward wage rigidity: some methodological considerations and new empirical evidence," Working Papers w201215, Banco de Portugal, Economics and Research Department.
    15. Templ Matthias, 2015. "Quality Indicators for Statistical Disclosure Methods: A Case Study on the Structure of Earnings Survey," Journal of Official Statistics, De Gruyter Open, vol. 31(4), pages 737-761, December.
    16. Peter Hördahl & Oreste Tristani, 2010. "Inflation risk premia in the US and the euro area," BIS Working Papers 325, Bank for International Settlements.
    17. Kátay, Gábor, 2011. "Downward wage rigidity in Hungary," Working Paper Series 1372, European Central Bank.

    More about this item

    Keywords

    matched employer-employee data; wage-bargaining institutions; wage rigidity;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20091006. 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: (Official Publications). General contact details of provider: http://edirc.repec.org/data/emieude.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.