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Wage Flexibility in Turbulent Times; A Practitioner’s Guide, with an Application to Poland

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  • International Monetary Fund

Abstract

This paper reviews several methods to measure wage flexibility, and their suitability for evaluating the extent of such flexibility during times of structural change, when wage distributions and wage curves can be particularly volatile. The paper uses nonparametric estimation to capture possible nonlinearities in the wage curve and relaxes the assumption of a stable wage distribution over time by linking the shape of the wage change distribution to macroeconomic variables. The proposed methodology is applied to Polish micro data. The estimates confirm that wages are less elastic in a high-unemployment/low-wage environment. Based on a comparison of actual and counterfactual wage distributions, the effects of nominal wage rigidities on real wages, and thus, on the labor market and the real economy, were limited until 1998, but have been quite significant thereafter.

Suggested Citation

  • International Monetary Fund, 2005. "Wage Flexibility in Turbulent Times; A Practitioner’s Guide, with an Application to Poland," IMF Working Papers 05/134, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/134
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    References listed on IDEAS

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    1. Kamil Galuscak & Daniel Munich, 2003. "Microfoundations of the Wage Inflation in the Czech Republic," Working Papers 2003/01, Czech National Bank, Research Department.
    2. 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.
    3. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
    4. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
    5. Stephen Nickell & Glenda Quintini, 2003. "Nominal wage rigidity and the rate of inflation," Economic Journal, Royal Economic Society, vol. 113(490), pages 762-781, October.
    6. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
    7. Winter-Ebmer, Rudolf, 1996. "Wage curve, unemployment duration and compensating differentials," Labour Economics, Elsevier, vol. 3(4), pages 425-434, December.
    8. repec:fth:prinin:343 is not listed on IDEAS
    9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    Cited by:

    1. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006.
    2. VAN POECK, André & VEINER, Maret, 2007. "Wage flexibility in the new European Union members: How different from the old?," Working Papers 2007016, University of Antwerp, Faculty of Applied Economics.
    3. Baltagi, Badi H. & Rokicki, Bartlomiej, 2014. "The spatial Polish wage curve with gender effects: Evidence from the Polish Labor Survey," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 36-47.
    4. Gani Ramadani & Nikola Naumovski, 2014. "Wage and Price Setting in Macedonia: Evidence from Survey Data," Working Papers 2015-05, National Bank of the Republic of Macedonia.

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    Keywords

    Central and Eastern Europe; Europe; Poland; Labor markets; Wages; Wage flexibility; wage; unemployment; unemployment rate; local unemployment; Wages; Compensation; and Labor Costs: General;

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