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How Rigid are Nominal Wages? Evidence and Implications for Germany

  • Knoppik, Christoph

    ()

    (University of Regensburg)

  • Beissinger, Thomas

    ()

    (University of Hohenheim)

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.

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File URL: http://ftp.iza.org/dp357.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 357.

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Length: 34 pages
Date of creation: Sep 2001
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 2003, 105 (4), 619-641
Handle: RePEc:iza:izadps:dp357
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  1. David E. Lebow & Raven E. Saks & Beth Anne Wilson, 1999. "Downward nominal wage rigidity: evidence from the employment cost index," Finance and Economics Discussion Series 1999-31, Board of Governors of the Federal Reserve System (U.S.).
  2. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
  3. Holden, Steinar, 1994. "Wage bargaining and nominal rigidities," European Economic Review, Elsevier, vol. 38(5), pages 1021-1039, May.
  4. Ernst Fehr & Lorenz Goette, 2007. "The Robustness and Real Consequences of Nominal Wage Rigidity," Kiel Working Papers 1343, Kiel Institute for the World Economy.
  5. Ernst Fehr & Lorenz Götte, 2000. "Robustness and Real Consequences of Nominal Wage Rigidity," CESifo Working Paper Series 335, CESifo Group Munich.
  6. Steinar Holden, 2001. "Monetary Policy and Nominal Rigidities under Low Inflation," CESifo Working Paper Series 481, CESifo Group Munich.
  7. Thanasis Stengos & Louis N. Christofides, 2002. "The symmetry of the wage-change distribution: Survey and contract data," Empirical Economics, Springer, vol. 27(4), pages 705-723.
  8. Wolfgang Franz, 2001. "Neues von der NAIRU?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 221(3), pages 256-284.
  9. 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.
  10. David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc.
  11. Stephen Nickell & Glenda Quintini, 2001. "Nominal Wage Rigidity and the Rate of Inflation," CEP Discussion Papers dp0489, Centre for Economic Performance, LSE.
  12. Farès, J. & Hogan, S., 2000. "The Employment Costs of Downward Nominal-Wage Rigidity," Working Papers 00-1, Bank of Canada.
  13. 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.
  14. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
  15. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  16. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  17. Kenneth J. McLaughlin, 1999. "Are nominal wage changes skewed away from wage cuts?," Review, Federal Reserve Bank of St. Louis, issue May, pages 117-132.
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