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Price and wage formation in Portugal

Author

Listed:
  • Robalo Marques, Carlos
  • Martins, Fernando
  • Portugal, Pedro

Abstract

This paper brings together empirical research on price and wage dynamics for the Portuguese economy based both on micro and macro data. As regards firms' pricing behaviour the most noticeable finding is that prices in Portugal are somewhat less flexible than in the United States but more flexible than in the Euro Area. Regarding firms' wage setting practices, we uncover evidence favouring the hypothesis of aggregate and disaggregate wage flexibility. Despite the existence of mandatory minimum wages, the presence of binding wage floors and the general use of extension mechanisms, the firms still retain some ability to circumvent collective agreements via the mechanism of the wage cushion. The evidence also suggests that Portuguese wages behave in a fashion consistent with the wage curve literature, but the responsiveness of real wages to unemployment changes may have declined over the last decade. JEL Classification: C42, D40, E31, J30

Suggested Citation

  • Robalo Marques, Carlos & Martins, Fernando & Portugal, Pedro, 2010. "Price and wage formation in Portugal," Working Paper Series 1225, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20101225
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    File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1225.pdf
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    References listed on IDEAS

    as
    1. José Varejão & Pedro Portugal, 2007. "Employment Dynamics and the Structure of Labor Adjustment Costs," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 137-165.
    2. Paulo Guimarães & Pedro Portugal, 2009. "A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects," Working Papers w200909, Banco de Portugal, Economics and Research Department.
    3. José Varejão & Pedro Portugal, 2007. "Spatial and Temporal Aggregation in the Estimation of Labor Demand Functions," Working Papers w200704, Banco de Portugal, Economics and Research Department.
    4. Paulo Guimarães & Pedro Portugal, 2009. "A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects," Working Papers w200909, Banco de Portugal, Economics and Research Department.
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    Citations

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    Cited by:

    1. Fernando Borraz & Gerardo Licandro & Daniela Sola, 2013. "Wage and Price Setting. New Evidence from Uruguayan Firms," Documentos de trabajo 2013008, Banco Central del Uruguay.
    2. Ana Iregui & Ligia Melo & María Ramírez, 2012. "Wage Adjustment Practices and the Link between Price and Wages: Survey Evidence from Colombian Firms," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, pages 17-53.
    3. Pedro S. Martins, 2016. "Can overtime premium flexibility promote employment? Firm- and worker-level evidence from a labour law reform," Working Papers 72, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.

    More about this item

    Keywords

    Persistence; survey data; wage and price rigidities; wage cushion;

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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