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Real and nominal wage rigidities and the rate of inflation: Evidence from West German micro data

  • Bauer, Thomas K.
  • Bonin, Holger
  • Goette, Lorenz
  • Sunde, Uwe

This article examines real and nominal wage rigidities in West Germany. Using regionally disaggregated register data for 1975-2001, we estimate the extent of both types of wage rigidities from the observed distribution of individual wage changes, taking into account possible measurement error. The fraction of workers facing wage increases that are caused by nominal and particularly real wage rigidity is substantial. The extent of real rigidity rises with inflation and falls with regional unemployment, whereas the opposite holds for nominal rigidity. Overall, the incidence of wage rigidity, which accelerates unemployment growth, is most likely minimised in a moderate inflation environment.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20121.

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Date of creation: 2007
Date of revision:
Publication status: Published in Economic Journal 524 117(2007): pp. F508-F529
Handle: RePEc:lmu:muenar:20121
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