IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp5778.html
   My bibliography  Save this paper

Wage Rigidity and Disinflation in Emerging Countries

Author

Listed:
  • Messina, Julián

    () (Inter-American Development Bank)

  • Sanz-de-Galdeano, Anna

    () (Universidad de Alicante)

Abstract

This paper examines the consequences of rapid disinflation for downward wage rigidities in two emerging countries, Brazil and Uruguay, relying on high quality matched employer-employee administrative data. Downward nominal wage rigidities are more important in Uruguay, while wage indexation is dominant in Brazil. Two regime changes are observed during the sample period, 1995-2004: (i) in Uruguay wage indexation declines, while workers' resistance to nominal wage cuts becomes more pronounced; and (ii) in Brazil, the introduction of inflation targeting by the Central Bank in 1999 shifts the focal point of wage negotiations from changes in the minimum wage to expected inflation. These regime changes cast doubts on the notion that wage rigidity is structural in the sense of Lucas (1976).

Suggested Citation

  • Messina, Julián & Sanz-de-Galdeano, Anna, 2011. "Wage Rigidity and Disinflation in Emerging Countries," IZA Discussion Papers 5778, Institute for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp5778
    as

    Download full text from publisher

    File URL: http://ftp.iza.org/dp5778.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2007. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 195-214, Spring.
    2. Holden Steinar & Wulfsberg Fredrik, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-50, April.
    3. Lorenz Goette & Uwe Sunde & Thomas Bauer, 2007. "Wage Rigidity: Measurement, Causes and Consequences," Economic Journal, Royal Economic Society, vol. 117(524), pages 499-507, November.
    4. 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.
    5. 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.
    6. Thomas Bauer & Holger Bonin & Lorenz Goette & Uwe Sunde, 2007. "Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data," Economic Journal, Royal Economic Society, vol. 117(524), pages 508-529, November.
    7. Francesco Devicienti & Agata Maida & Paolo Sestito, 2007. "Downward Wage Rigidity in Italy: Micro-Based Measures and Implications," Economic Journal, Royal Economic Society, vol. 117(524), pages 530-552, November.
    8. Holden, Steinar & Wulfsberg, Fredrik, 2009. "How strong is the macroeconomic case for downward real wage rigidity?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 605-615, May.
    9. William Maloney & Jairo Mendez, 2004. "Measuring the Impact of Minimum Wages. Evidence from Latin America," NBER Chapters,in: Law and Employment: Lessons from Latin America and the Caribbean, pages 109-130 National Bureau of Economic Research, Inc.
    10. Benati, Luca, 2008. "Investigating inflation persistence across monetary regimes," Working Paper Series 851, European Central Bank.
    11. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
    12. Juli?n Messina & Anna Sanz-de-Galdeano, 2014. "Wage Rigidity and Disinflation in Emerging Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(1), pages 102-133, January.
    13. Hofmann, Boris & Peersman, Gert & Straub, Roland, 2012. "Time variation in U.S. wage dynamics," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 769-783.
    14. Castellanos, Sara G. & Garcia-Verdu, Rodrigo & Kaplan, David S., 2004. "Nominal wage rigidities in Mexico: evidence from social security records," Journal of Development Economics, Elsevier, vol. 75(2), pages 507-533, December.
    15. 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.
    16. Adriana Cassoni & Gaston J. Labadie & Gabriela Fachola, 2002. "The Economic Effects of Unions in Latin America: Their Impact on Wages and the Economic Performance of Firms in Uruguay," Research Department Publications 3159, Inter-American Development Bank, Research Department.
    17. Carl M. Campbell III & Kunal S. Kamlani, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 759-789.
    18. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages 176-195, March.
    19. Fuss, Catherine & Wintr, Ladislav & Du Caju, Philip, 2007. "Downward wage rigidity for different workers and firms: an evaluation for Belgium using the IWFP procedure," Working Paper Series 840, European Central Bank.
    20. Peter Gottschalk, 2005. "Downward Nominal-Wage Flexibility: Real or Measurement Error?," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 556-568, August.
    21. Sara Lemos, 2006. "Anticipated effects of the minimum wage on prices," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 325-337.
    22. Haltiwanger, John & Scarpetta, Stefano & Schweiger, Helena, 2014. "Cross country differences in job reallocation: The role of industry, firm size and regulations," Labour Economics, Elsevier, vol. 26(C), pages 11-25.
    23. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    24. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
    25. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    26. Babecký, Jan & Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julián & Rõõm, Tairi, 2012. "How do European firms adjust their labour costs when nominal wages are rigid?," Labour Economics, Elsevier, vol. 19(5), pages 792-801.
    27. Luca Benati, 2008. "Investigating Inflation Persistence Across Monetary Regimes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 1005-1060.
    28. RichardD. Barwell & MarkE. Schweitzer, 2007. "The Incidence of Nominal and Real Wage Rigidities in Great Britain: 1978-98," Economic Journal, Royal Economic Society, vol. 117(524), pages 553-569, November.
    29. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730, September.
    30. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    31. Anabela Carneiro & Paulo Guimarães & Pedro Portugal, 2012. "Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job Title Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 133-152, April.
    32. Wendy Cunningham, 2007. "Minimum Wages and Social Policy : Lessons from Developing Countries," World Bank Publications, The World Bank, number 6760, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Augusto de la Torre & Alain Ize & Guillermo Beylis & Daniel Lederman, "undated". "Jobs, Wages and the Latin American Slowdown," World Bank Other Operational Studies 22709, The World Bank.
    2. Anete Pajuste & Hernán Ruffo, 2017. "Wage rigidity and workers’ flows during recessions," SSE Riga/BICEPS Research Papers 4, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    3. Messina, Julian & Gambetti, Luca, 2014. "Evolving wage cyclicality in Latin America," Policy Research Working Paper Series 6978, The World Bank.
    4. Juli?n Messina & Anna Sanz-de-Galdeano, 2014. "Wage Rigidity and Disinflation in Emerging Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(1), pages 102-133, January.
    5. repec:bla:obuest:v:79:y:2017:i:1:p:55-78 is not listed on IDEAS
    6. Dias, Daniel A. & Marques, Carlos Robalo & Martins, Fernando, 2013. "Wage rigidity and employment adjustment at the firm level: Evidence from survey data," Labour Economics, Elsevier, vol. 23(C), pages 40-49.
    7. Antonia López-Villavicencio & Sophie Saglio, 2017. "The Wage Inflation-Unemployment Curve at the Macroeconomic Level," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(1), pages 55-78, February.
    8. D. Lederman & W.F. Maloney & J. Messina, 2011. "The Fall of Wage Flexibility," World Bank Other Operational Studies 23575, The World Bank.
    9. Selien De Schryder & Gert Peersman & Joris Wauters, 2014. "Wage Indexation and the Monetary Policy Regime," CESifo Working Paper Series 5107, CESifo Group Munich.
    10. Agudelo, Sonia A. & Sala, Hector, 2017. "Wage Rigidities in Colombia: Measurement, Causes, and Policy Implications," IZA Discussion Papers 10669, Institute for the Study of Labor (IZA).
    11. Juárez González Laura & Casarín de la Cabada Daniel, 2016. "Downward Wage Rigidities in the Mexican Labor Market 1996-2011," Working Papers 2016-23, Banco de México.
    12. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Labour cost-cutting strategies microeconomic evidence from survey data," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    matched employer-employee data; indexation; downward wage rigidity; emerging economies;

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:dp5778. 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: (Mark Fallak). 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.