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Evidence on nominal wage rigidity from a panel of U.S. manufacturing industries

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  • Vivek Ghosal
  • Prakash Loungani

Abstract

Using annual data for 450 manufacturing industries over the period 1958 to 1989, we establish the following stylized facts on the response of industry nominal wage growth to aggregate and industry influences: ; 1. We find support for the canonical wage contracts model outlined in Blanchard and Fischer (1989). The elasticity of response of nominal wage growth to expected inflation is 0.7. The dasticity of nominal wage growth with respect to changes in unexpected inflation is 0.1. ; 2. These elasticity estimates are robust to splitting the sample along various dimensions: level of unionization, durability of the product, and industry contract length. The elasticity of nominal wage growth to expected inflation ranges from 0.6 to 0.8; the elasticity with respect to unexpected inflation is between 0.1 and 0.2. ; 3. We find support for the multi-sector wage indexation models of Duca and VanHoose (199] ) and others. The profit-sharing elasticity (the response of industry wage growth to industry profit growth) is positive, as hypothesized in these models. The instrumental variable estimates of the profit-sharing elasticity range from 0.1 to 0.3.

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  • Vivek Ghosal & Prakash Loungani, 1995. "Evidence on nominal wage rigidity from a panel of U.S. manufacturing industries," International Finance Discussion Papers 512, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:512
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    Cited by:

    1. Ghosal, Vivek, 2002. "Potential foreign competition in US manufacturing," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1461-1489, December.
    2. Duca, John V. & Vanhoose, David D., 1998. "The Rise of Goods-Market Competition and the Decline in Wage Indexation: A Macroeconomic Approach," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 579-598, July.
    3. Duca, John V. & VanHoose, David D., 1998. "Goods-market competition and profit sharing: a multisector macro approach," Journal of Economics and Business, Elsevier, vol. 50(6), pages 525-534, November.
    4. Christopher Hanes, 2000. "Nominal Wage Rigidity and Industry Characteristics in the Downturns of 1893, 1929, and 1981," American Economic Review, American Economic Association, vol. 90(5), pages 1432-1446, December.
    5. David D. VanHoose, 2004. "The New Open Economy Macroeconomics: A Critical Appraisal," Open Economies Review, Springer, vol. 15(2), pages 193-215, April.
    6. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
    7. Duca, John V. & Van Hoose, David D., 2001. "The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 1-29, January.

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