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Wage Rigidity, Institutions, and Inflation

Author

Listed:
  • Holden , Steinar

    (Dept. of Economics, University of Oslo)

  • Wulfsberg, Fredrik

    (Norges Bank)

Abstract

A number of recent studies have documented extensive downward nominal wage rigidity (dnwr) for job stayers in many oecd countries. However, DNWR for individual workers may induce downward rigidity or “a floor” for the aggregate wage growth at positive or negative levels. Aggregate wage growth may be below zero because of compositional effects, for example that old, high-wage workers are replaced by young low-wage workers. dnwr may also lead to a positive growth in aggregate wages because of changes in relative wages. We explore industry data for 19 oecd countries, over the period 1971–2006. We find evidence for floors on nominal wage growth at 6 percent and lower in the 1970s and 1980s, at one percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that dnwr is stronger in country-years with strict employment protection legislation, high union density, centralised wage setting and high inflation.

Suggested Citation

  • Holden , Steinar & Wulfsberg, Fredrik, 2009. "Wage Rigidity, Institutions, and Inflation," Memorandum 03/2009, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2009_003
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    File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2009/Memo-03-2009.pdf
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    Cited by:

    1. Stefano Gnocchi & Evi Pappa, "undated". "Do labor market rigidities matter for business cycles? Yes they do," Working Papers 411, Barcelona School of Economics.
    2. Baqaee, David Rezza, 2020. "Asymmetric inflation expectations, downward rigidity of wages, and asymmetric business cycles," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 174-193.
    3. Lünnemann, Patrick & Wintr, Ladislav, 2010. "Downward wage rigidity and automatic wage indexation: evidence from monthly micro wage data," Working Paper Series 1269, European Central Bank.

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    Keywords

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: 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
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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