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How Rigid are Nominal Wages? Evidence and Implications for Germany

Author

Listed:
  • Knoppik, Christoph

    (University of Regensburg)

  • Beissinger, Thomas

    (University of Hohenheim)

Abstract

Many of the recent attempts to find evidence of downward nominal wage rigidity in micro data have suffered from a number of problems, including composition bias and the effects of measurement error. In order to avoid these problems we explicitly model the determinants of wage changes and the measurement process that leads to observable earnings changes, thereby directly tackling the question of whether and to which extent downward nominal wage rigidity exists in German micro data. We find a high degree of downward nominal wage rigidity, which for rates of inflation lower than three percent is shown to lead to higher equilibrium unemployment via the generated real wage wedge.

Suggested Citation

  • Knoppik, Christoph & Beissinger, Thomas, 2001. "How Rigid are Nominal Wages? Evidence and Implications for Germany," IZA Discussion Papers 357, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp357
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    References listed on IDEAS

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    More about this item

    Keywords

    unemployment; Downward nominal wage rigidity; inflation; target; Germany;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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