IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp2487.html
   My bibliography  Save this paper

How Wages Change: Micro Evidence from the International Wage Flexibility Project

Author

Listed:
  • Dickens, William T.

    () (Brookings Institution)

  • Götte, Lorenz

    () (University of Bonn)

  • Groshen, Erica L.

    () (Cornell University)

  • Holden, Steinar

    () (University of Oslo)

  • Messina, Julián

    () (Inter-American Development Bank)

  • Schweitzer, Mark E.

    () (Federal Reserve Bank of Cleveland)

  • Turunen, Jarkko

    () (International Monetary Fund)

  • Ward-Warmedinger, Melanie E.

    () (European Central Bank)

Abstract

How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals’ earnings in 31 different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries.

Suggested Citation

  • Dickens, William T. & Götte, Lorenz & Groshen, Erica L. & Holden, Steinar & Messina, Julián & Schweitzer, Mark E. & Turunen, Jarkko & Ward-Warmedinger, Melanie E., 2006. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," IZA Discussion Papers 2487, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2487
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp2487.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 361-408, October.
    2. Lebow David E & Saks Raven E & Wilson Beth Anne, 2003. "Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-30, October.
    3. 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.
    4. Camba-Méndez, Gonzalo & Garcí­a, Juan Angel & Rodriguez-Palenzuela, Diego, 2003. "Relevant economic issues concerning the optimal rate of inflation," Working Paper Series 278, European Central Bank.
    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. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series 1252, CESifo Group Munich.
    7. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    8. Christoph Knoppik & Thomas Beissinger, 2009. "Downward nominal wage rigidity in Europe: an analysis of European micro data from the ECHP 1994–2001," Empirical Economics, Springer, vol. 36(2), pages 321-338, May.
    9. Steinar Holden, 2004. "Wage Formation under Low Inflation," CESifo Working Paper Series 1252, CESifo Group Munich.
    10. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie Ward, "undated". "The interaction of labor markets and inflation: analysis of micro data from the International Wage Flexibility Project," Proceedings y:2006:x:4, Federal Reserve Bank of San Francisco.
    11. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    12. Daniele Checchi & Claudio Lucifora, 2002. "Unions and labour market institutions in Europe," Departmental Working Papers 2002-16, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    13. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages 176-195, March.
    14. Nickell, Stephen & Nunziata, Luca, 2000. "Employment patterns in OECD countries," LSE Research Online Documents on Economics 20198, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    downward real wage rigidity; downward nominal wage rigidity; wage change distributions; wage setting;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp2487. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Holger Hinte). General contact details of provider: http://www.iza.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.