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Nominal wage flexibility and institutions: preliminary micro-evidence from the Europanel

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  • Orietta DESSY

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Abstract

This paper analyses wage dynamics at individual level using the European Community Household Panel data. We compare yearly wage changes of full-time employees staying in the same firm for twelve European countries during the 1994-96 time-period. For all the European countries we find evidence of nominal wage rigidity. The percentage of employees receiving no wage changes is different across countries, with Germany and Ireland ranking at the top and the bottom respectively. At the same time, nominal wage cuts are not rare. We therefore consider the impact of the bargaining structure and institutions in the European labor markets on the extent of nominal wage fexibility observed.

Suggested Citation

  • Orietta DESSY, 2004. "Nominal wage flexibility and institutions: preliminary micro-evidence from the Europanel," Departmental Working Papers 2004-17, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2004-17
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    File URL: http://wp.demm.unimi.it/files/wp/2004/DEMM-2004_017wp.pdf
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    References listed on IDEAS

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    1. Groth, Charlotta & Johansson, Asa, 2004. "Bargaining structure and nominal wage flexibility," European Economic Review, Elsevier, vol. 48(6), pages 1349-1365, December.
    2. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
    3. Fehr, Ernst & Goette, Lorenz, 2005. "Robustness and real consequences of nominal wage rigidity," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 779-804, May.
    4. Stephen Nickell & Glenda Quintini, 2003. "Nominal wage rigidity and the rate of inflation," Economic Journal, Royal Economic Society, vol. 113(490), pages 762-781, October.
    5. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, pages 993-1008.
    6. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
    7. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages 176-195, March.
    8. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
    9. Robert J. Flanagan, 1999. "Macroeconomic Performance and Collective Bargaining: An International Perspective," Journal of Economic Literature, American Economic Association, pages 1150-1175.
    10. Steinar Holden, 2004. "The Costs of Price Stability: Downward Nominal Wage Rigidity in Europe," Economica, London School of Economics and Political Science, vol. 71(281), pages 183-208, May.
    11. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, pages 63-90.
    12. Fehr, Ernst, 2000. "The Robustness and Real Consequences of Nominal Wage Rigidity," CEPR Discussion Papers 2516, C.E.P.R. Discussion Papers.
    13. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
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    Cited by:

    1. Michael Bordo & Harold James, 2008. "A Long Term Perspective on the Euro," European Economy - Economic Papers 2008 - 2015 307, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Christoffel, Kai & Linzert, Tobias, 2005. "The Role of Real Wage Rigidity and Labor Market Frictions for Unemployment and Inflation Dynamics," IZA Discussion Papers 1896, Institute for the Study of Labor (IZA).
    3. Barno Blaes, 2008. "Ausmaß und reale Konsequenzen nach unten starrer Nominallöhne," Working Papers 048, Bavarian Graduate Program in Economics (BGPE).
    4. Holden, Steinar & Wulfsberg, Fredrik, 2004. "Downward Nominal Wage Rigidity in Europe," Memorandum 08/2004, Oslo University, Department of Economics.
    5. Michael Bordo & Harold James, 2008. "A Long Term Perspective on the Euro," European Economy - Economic Papers 2008 - 2015 307, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    More about this item

    Keywords

    nominal wage rigidity; centralisation; coverage; employ-ment; protection legislation;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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