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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.

    () (Federal Reserve Bank of New York)

  • 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 for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp2487
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    References listed on IDEAS

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    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.
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    More about this item

    Keywords

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

    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

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