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

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

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

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Paper provided by European Central Bank in its series Working Paper Series with number 1006.

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Date of creation: Feb 2009
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Handle: RePEc:ecb:ecbwps:20091006
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  1. Steinar Holden & Fredrik Wulfsberg, 2007. "Downward Nominal Wage Rigidity in the OECD," CESifo Working Paper Series 2009, CESifo Group Munich.
  2. Fuss, Catherine, 2008. "How do firms adjust their wage bill in Belgium? A decomposition along the intensive and extensive margins," Working Paper Series 0854, European Central Bank.
  3. Christopoulou, Rebekka & Vermeulen, Philip, 2008. "Markups in the euro area and the US over the period 1981-2004: a comparison of 50 sectors," Working Paper Series 0856, European Central Bank.
  4. Jan Babecky & Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Room, 2009. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Working Papers 2009/4, Czech National Bank, Research Department.
  5. Philip Vermeulen & Daniel Dias & Maarten Dossche & Erwan Gautier & I. Hernando & R. Sabbatini & H. Stahl, 2007. "Price setting in the euro area: Some stylised facts from Individual Producer Price Data," Working Papers w200705, Banco de Portugal, Economics and Research Department.
  6. 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.
  7. Luis J. Álvarez & Emmanuel Dhyne & Marco M. Hoeberichts & Claudia Kwapil & Hervé le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2005. "Sticky prices in the euro area: a summary of new micro evidence," Banco de Espa�a Working Papers 0542, Banco de Espa�a.
  8. Christian Haefke & Marcus Sonntag & Thijs van Rens, 2009. "Wage Rigidity and Job Creation," Kiel Working Papers 1504, Kiel Institute for the World Economy.
  9. 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.
  10. Ernst Fehr & Lorenz Goette, . "Robustness and Real Consequences of Nominal Wage Rigidity," IEW - Working Papers 044, Institute for Empirical Research in Economics - University of Zurich.
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  12. Dias, D. & Dossche, M. & Gautier, E. & Hernando, I. & Sabbatini , R. & Stahl , H. & Vermeulen, P., 2007. "Macro Price setting in the euro area: Some stylised facts from Individual Producer Price," Working papers 164, Banque de France.
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