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Nominal wage rigidity in Europe: estimates and institutional causes

  • Orietta DESSY

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    In this paper we construct and compare different measures of nominal wage rigidity for the EU countries using the 1994-2000 waves of the European Community Household Panel. The observed distributions of nominal wage changes show a relevant percentage of nominal wage cuts and freezes across countries. When measurement error is taken into account in an econometric model of wage changes appropriately estimated, it explains almost the totality of wage cuts observed. Therefore the extent of nominal wage rigidity is quite high in Europe. Institutional causes of wage rigidity are investigated, finding an ''hump-shaped'' relationship between nominal wage flexibility and both employment protection legislation and coordination. On the other hand, an ''u-shaped'' impact of union coverage on measures of downward wage rigidity is found

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    File URL: http://wp.demm.unimi.it/tl_files/wp/2005/DEMM-2005_009wp.pdf
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    Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2005-09.

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    Date of creation: 01 Jan 2005
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    Handle: RePEc:mil:wpdepa:2005-09
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    1. 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.
    2. Holden, Steinar & Wulfsberg, Fredrik, 2004. "Downward Nominal Wage Rigidity in Europe," Memorandum 08/2004, Oslo University, Department of Economics.
    3. Groth, Charlotta & Johansson, Asa, 2004. "Bargaining structure and nominal wage flexibility," European Economic Review, Elsevier, vol. 48(6), pages 1349-1365, December.
    4. Stephen Nickell & Glenda Quintini, 2001. "Nominal wage rigidity and the rate of inflation," LSE Research Online Documents on Economics 20131, London School of Economics and Political Science, LSE Library.
    5. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
    6. Steinar Holden, 2004. "Wage formation under low inflation," Working Paper 2004/14, Norges Bank.
    7. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
    8. 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, 05.
    9. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
    10. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
    11. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March.
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