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Upward Nominal Wage Rigidity

Author

Listed:
  • Guimaraes, Paulo

    () (Banco de Portugal)

  • Martins, Fernando

    () (Banco de Portugal)

  • Portugal, Pedro

    () (Banco de Portugal)

Abstract

In Portugal, as in many other countries in continental Europe, the collective wage agreements between trade unions and employer associations that define wage floors for specific job titles are systematically extended to the whole industry. This means that many firms are obliged to increase the wages of their workforce in order to comply with the newly-agreed bargained wages. With some trepidation, we call this phenomenon upward nominal wage rigidity, in close symmetry with the Keynesian notion of downward nominal wage rigidity. In this paper we provide evidence that firms that are more heavily affected by the change in the bargained wage floors decrease their hiring rates and, more importantly, significantly increase their separation rates. As a complement to our analysis, we suggest the estimation of a measure that attempts to disentangle the strength of internal and external wage conditions. Based on this measure we show that firms whose wages are more influenced by external wages exhibit much lower net job creation rates.

Suggested Citation

  • Guimaraes, Paulo & Martins, Fernando & Portugal, Pedro, 2017. "Upward Nominal Wage Rigidity," IZA Discussion Papers 10510, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10510
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    References listed on IDEAS

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    1. Carneiro, Anabela & Portugal, Pedro & Varejão, José, 2014. "Catastrophic job Destruction during the Portuguese Economic Crisis," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 444-457.
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    14. Martins, Pedro S., 2014. "30,000 Minimum Wages: The Economic Effects of Collective Bargaining Extensions," IZA Discussion Papers 8540, Institute for the Study of Labor (IZA).
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    Cited by:

    1. repec:bfr:quarte:2016:45:01 is not listed on IDEAS
    2. Alexander Hijzen & Pedro S. Martins, 2016. "No Extension without Representation? Evidence from a Natural Experiment in Collective Bargaining," Working Papers 68, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    3. repec:bfr:quarte:2017:45:04 is not listed on IDEAS
    4. Fernando Martins, 2015. "On the wage bargaining system in Portugal," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    5. Denis Fougere & Erwan Gautier & Sébastien Roux, 2016. "The Impact of the National Minimum Wage on Industry-Level Wage Bargaining in France," Sciences Po publications 587, Sciences Po.
    6. repec:bfr:quarte:2017:45:05 is not listed on IDEAS
    7. repec:bfr:quarte:2016:45:05 is not listed on IDEAS
    8. repec:bfr:quarte:2017:45:06 is not listed on IDEAS
    9. repec:bfr:quarte:2017:45:03 is not listed on IDEAS
    10. Fougère, Denis & Gautier, Erwan & Roux, Sébastien, 2016. "Understanding Wage Floor Setting in Industry-Level Agreements: Evidence from France," IZA Discussion Papers 10290, Institute for the Study of Labor (IZA).
    11. repec:bfr:quarte:2016:45:02 is not listed on IDEAS
    12. repec:bfr:quarte:2016:45:03 is not listed on IDEAS
    13. John T. Addison, 2016. "Collective bargaining systems and macroeconomic and microeconomic flexibility: the quest for appropriate institutional forms in advanced economies," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-53, December.
    14. repec:bfr:quarte:2016:45:06 is not listed on IDEAS
    15. Luis Diéz-Catalán & Ernesto Villanueva, 2015. "Contract staggering and unemployment during the great recession: evidence from Spain," Working Papers 1431, Banco de España;Working Papers Homepage.
    16. repec:bfr:quarte:2017:45:02 is not listed on IDEAS
    17. C. Berson & C. Malgouyres & S. Ray, 2017. "The labour market: institutions and reforms Summary of the third Labour Market Conference held in Aix-en-Provence on 1 and 2 December 2016 by the Aix-Marseille School of Economics and the Banque de Fr," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 45, pages 45-52, Spring.
    18. repec:bfr:quarte:2017:45:01 is not listed on IDEAS
    19. Addison, John T. & Portugal, Pedro & Vilares, Hugo, 2015. "Unions and Collective Bargaining in the Wake of the Great Recession," IZA Discussion Papers 8943, Institute for the Study of Labor (IZA).
    20. Ernesto Villanueva, 2015. "Employment and wage effects of extending collective bargaining agreements," IZA World of Labor, Institute for the Study of Labor (IZA), pages 136-136, March.
    21. repec:bfr:quarte:2016:45:04 is not listed on IDEAS
    22. Pedro Portugal, 2015. "On fallacies surrounding the discussion about the reduction of social security contributions," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    wage rigidity; worker flows; collective bargaining; newly-hired workers;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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