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Nominal Wage Rigidity in Australia

Author

Listed:
  • Jacqueline Dwyer

    (Reserve Bank of Australia)

  • Kenneth Leong

    (Reserve Bank of Australia)

Abstract

The existence of downward nominal price and wage rigidity has been used to argue against the adoption of zero inflation targets. A good deal is known about the nature and extent of price flexibility in Australia. However, little is known about nominal wage flexibility since investigations have been hindered by a lack of suitable data. Using a unique and unpublished microdata set, we find strong evidence of downward nominal wage rigidity. The idea that firms are able to circumvent wage rigidity by varying broader forms of remuneration is not supported by our study. We find that these broad measures are still skewed away from pay cuts, though to a lesser extent than wages. Not all of the observed rigidity is binding, though, since skewness away from wage cuts appears to occur for reasons other than downward wage rigidity. However, the extent of rigidity we do observe lends support to the pursuit of small positive rates of inflation as an objective of monetary policy.

Suggested Citation

  • Jacqueline Dwyer & Kenneth Leong, 2000. "Nominal Wage Rigidity in Australia," RBA Research Discussion Papers rdp2000-08, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2000-08
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    Citations

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    Cited by:

    1. Ana Mar�a Iregui & Ligia Alba Melo & Mar�a Teresa Ram�rez, 2009. "Rigideces de los salarios a la baja en Colombia: Evidencia emp�rica a partir de una muestra de salarios a nivel de firma," Borradores de Economia 5757, Banco de la Republica.
    2. Øistein Røisland & Ragnar Torvik, 2004. "Exchange rate versus inflation targeting: a theory of output fluctuations in traded and non-traded sectors," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(3), pages 265-285.
    3. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006.
    4. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., 2009. "Are wages rigid in Colombia?: Empirical evidence based on a sample of wages at the firm level," Borradores de Economia 571i, Banco de la Republica de Colombia.
    5. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September.
    6. Dany Brouillette & Olena Kostyshyna & Natalia Kyui, 2018. "Downward nominal wage rigidity in Canada: Evidence from micro-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 51(3), pages 968-1002, August.
    7. Pierre Fortin & George A. Akerlof & William T. Dickens & George L. Perry, 2002. "Inflation and Unemployment in the U.S. and Canada: A Common Framework," Cahiers de recherche du Département des sciences économiques, UQAM 20-16, Université du Québec à Montréal, Département des sciences économiques.
    8. Iregui-Bohórquez, Ana María & Melo-Becerra, Ligia Alba & Ramírez-Giraldo, María Teresa, 2011. "Rigideces de los salarios a la baja en Colombia : evidencia empírica a partir de una muestra de salarios a nivel de firma," Chapters, in: López Enciso, Enrique & Ramírez Giraldo, María Teresa (ed.), Formación de precios y salarios en Colombia, tomo II, volume 2, chapter 18, pages 757-797, Banco de la Republica de Colombia.
    9. 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.
    10. Janet L. Yellen & George A. Akerlof, 2006. "Stabilization Policy: A Reconsideration," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 1-22, January.
    11. Thomas Beissinger & Chritoph Knoppik, 2005. "Sind Nominallöhne starr? Neuere Evidenz und wirtschaftspolitische Implikationen," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(2), pages 171-188, May.
    12. Smith, Jennifer C., "undated". "Pay cuts and morale: a test of downward nominal rigidity," Economic Research Papers 269462, University of Warwick - Department of Economics.
    13. Andrew Charlton, 2003. "Nominal Wage Rigidity in The Australian Labour Market: Evidence from household Data," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 6(1), pages 25-36, March.
    14. Castellanos Pascacio Sara Gabriela & García Verdú Rodrigo & Kaplan David, 2004. "Wage Rigidities in Mexico: Evidence from the Administrative Records of the Mexican Social Security Institute (Instituto Mexicano del Seguro Social)," Working Papers 2004-03, Banco de México.
    15. Ana María Iregui B. & Ligia Alba Melo Becerra & María Teresa Ramírez Giraldo, 2013. "Rigidez a la baja en los salarios y respuestas de las empresas a una desaceleración económica: evidencia de una encuesta a empresas colombianas," Investigación Conjunta-Joint Research, in: Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), Dinámica inflacionaria, persistencia y formación de precios y salarios, edition 1, chapter 15, pages 435-483, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    16. Yi-Ping Tseng, 2001. "Individuals’ Wage Changes in Australia 1997-2000," Melbourne Institute Working Paper Series wp2001n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

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    Keywords

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    JEL classification:

    • 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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