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Nominal Wage Rigidity in Contract Data: A Parametric Approach

  • Louis N. Christofides
  • Man Tuen Leung

Using wage agreements reached in the Canadian unionized sector during 1976-99, a period of high as well as exceptionally low inflation, we consider how histograms of wage adjustment change as inflation reaches the low levels of the 1990s. The histograms and parametric tests suggest that wage adjustment is characterized by downward nominal rigidity and significant spikes at zero. There is some evidence of modest menu-cost effects. We examine whether the rigidity features of wage adjustment are sensitive to indexation provisions and investigate whether the distinction between short and long contracts is useful.

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File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0210.pdf
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Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 0210.

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Length: 45 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:ucy:cypeua:0210
Contact details of provider: Web page: http://www.econ.ucy.ac.cy

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  9. Ernst Fehr & Lorenz Goette, . "Robustness and Real Consequences of Nominal Wage Rigidity," IEW - Working Papers 044, Institute for Empirical Research in Economics - University of Zurich.
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  12. Card, David, 1986. "An Empirical Model of Wage Indexation Provisions in Union Contracts," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S144-75, June.
  13. David E. Lebow & David J. Stockton & William L. Wascher, 1995. "Inflation, nominal wage rigidity, and the efficiency of labor markets," Finance and Economics Discussion Series 95-45, Board of Governors of the Federal Reserve System (U.S.).
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  17. Charles Freedman & Tiff Macklem, 1998. "A Comment on "The Great Canadian Slump"," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 646-665, August.
  18. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp..
  19. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
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  22. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March.
  23. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
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  25. Laurence Ball & David Romer, 1987. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
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