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Downward wage rigidity in Europe: A new flexible parametric approach and empirical results

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  • Behr, Andreas
  • Pötter, Ulrich

Abstract

We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1994 and 2001. The data base used throughout is the User Data Base (UDB) of the European Community Household Panel (ECHP). The proposed approach is based on the very flexible generalized hyperbolic distribution which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe.

Suggested Citation

  • Behr, Andreas & Pötter, Ulrich, 2005. "Downward wage rigidity in Europe: A new flexible parametric approach and empirical results," Beiträge zur angewandten Wirtschaftsforschung 14, University of Münster, Center of Applied Economic Research Münster (CAWM).
    • Handle: RePEc:zbw:cawmbg:14
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    References listed on IDEAS

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    1. Iara, Anna & Traistaru, Iulia, 2004. "How flexible are wages in EU accession countries?," Labour Economics, Elsevier, vol. 11(4), pages 431-450, August.
    2. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe," Working Paper 2004/5, Norges Bank.
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    Cited by:

    1. Barno Blaes, 2008. "Ausmaß und reale Konsequenzen nach unten starrer Nominallöhne," Working Papers 048, Bavarian Graduate Program in Economics (BGPE).

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    More about this item

    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
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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