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Wage Rigidity and Disinflation in Emerging Countries

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Listed author(s):
  • 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).

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5778.

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Length: 42 pages
Date of creation: Jun 2011
Publication status: published in: American Economic Journal: Macroeconomics, 2014, 6 (1), 102-133
Handle: RePEc:iza:izadps:dp5778
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Keywords: matched employer-employee data; indexation; downward wage rigidity; emerging economies;

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Find related papers by 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

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Cited by:

  1. Messina, Julian & Gambetti, Luca, 2014. "Evolving wage cyclicality in Latin America," Policy Research Working Paper Series 6978, The World Bank.
  2. D. Lederman & W.F. Maloney & J. Messina, 2011. "The Fall of Wage Flexibility," World Bank Other Operational Studies 23575, The World Bank.
  3. 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.
  4. Selien De Schryder & Gert Peersman & Joris Wauters, 2014. "Wage Indexation and the Monetary Policy Regime," CESifo Working Paper Series 5107, CESifo Group Munich.
  5. 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).
  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. Saglio, Sophie & lopez-villavicencio, antonia, 2015. "The wage inflation-unemployment curve at the macroeconomic level," MPRA Paper 64725, University Library of Munich, Germany.
  8. 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.
  9. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Labour cost-cutting strategies microeconomic evidence from survey data," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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