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Does downward nominal wage rigidity dampen wage increases?

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  • Stüber, Heiko
  • Beissinger, Thomas

Abstract

Focusing on the compression of wage cuts, many empirical studies find a high degree of downward nominal wage rigidity (DNWR). However, the resulting macroeconomic effects seem to be surprisingly weak. This contradiction can be explained within an intertemporal framework in which DNWR not only prevents nominal wage cuts but also induces firms to compress wage increases. We analyze whether a compression of wage increases occurs when DNWR is binding by applying Unconditional Quantile Regression and Seemingly Unrelated Regression to a data set comprising more than 169 million wage changes. We find evidence for a compression of wage increases and only very small effects of DNWR on average real wage growth. The results indicate that DNWR does not provide a strong argument against low inflation targets.

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  • Stüber, Heiko & Beissinger, Thomas, 2010. "Does downward nominal wage rigidity dampen wage increases?," FZID Discussion Papers 22-2010, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  • Handle: RePEc:zbw:fziddp:222010
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    Cited by:

    1. Marco Fongoni & Alex Dickson, 2015. "A theory of wage setting behavior," Working Papers 1505, University of Strathclyde Business School, Department of Economics, revised Feb 2016.
    2. Simone Balestra & Uschi Backes-Gellner, 2014. "Heterogeneous effects of pupil-to-teacher ratio policies - A look at class size reduction and teacher aide," Economics of Education Working Paper Series 0102, University of Zurich, Department of Business Administration (IBW), revised Apr 2017.
    3. Jan Kluge & Michael Weber, 2015. "Decomposing the German East-West wage gap," ifo Working Paper Series 205, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    4. Fongoni, Marco & Dickson, Alex, 2015. "A Theory of Wage Setting Behavior," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-57, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Anja Deelen & Wouter Verbeek, 2015. "Measuring Downward Nominal and Real Wage Rigidity - Why Methods Matter," CPB Discussion Paper 315, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Fallick, Bruce C. & Lettau, Michael & Wascher, William L., 2016. "Downward Nominal Wage Rigidity in the United States during and after the Great Recession," Working Paper 1602, Federal Reserve Bank of Cleveland.
    7. Friso Schlitte, 2012. "Local human capital, segregation by skill, and skill‐specific employment growth," Papers in Regional Science, Wiley Blackwell, vol. 91(1), pages 85-106, March.
    8. Simone Balestra & Uschi Backes-Gellner, 2017. "Heterogeneous effects of pupil-to-teacher ratio policies - A look at class size reduction and teacher aide," Economics of Education Working Paper Series 0130, University of Zurich, Department of Business Administration (IBW).
    9. Stüber, Heiko & Beissinger, Thomas, 2012. "Does downward nominal wage rigidity dampen wage increases?," European Economic Review, Elsevier, vol. 56(4), pages 870-887.
    10. Agudelo, Sonia A. & Sala, Hector, 2017. "Wage Rigidities in Colombia: Measurement, Causes, and Policy Implications," IZA Discussion Papers 10669, Institute for the Study of Labor (IZA).
    11. Stüber, Heiko, 2012. "Are real entry wages rigid over the business cycle? : Empirical evidence for Germany from 1977 to 2009," IAB Discussion Paper 201206, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    12. Dias, Daniel A. & Marques, Carlos Robalo & Martins, Fernando, 2013. "Wage rigidity and employment adjustment at the firm level: Evidence from survey data," Labour Economics, Elsevier, vol. 23(C), pages 40-49.
    13. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Labour cost-cutting strategies microeconomic evidence from survey data," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    14. Izquierdo, Mario & Jimeno, Juan & Kosma, Theodora & Lamo, Ana & Millard, Stephen & Room, Tairi & Viviano, Eliana, 2017. "Labour market adjustment in Europe during the crisis: microeconomic evidence from the Wage Dynamics Network survey," Bank of England working papers 661, Bank of England.
    15. Dürnberger, Andrea & Drasch, Katrin & Matthes, Britta, 2010. "Kontextgestützte Abfrage in Retrospektiverhebungen: Ein kognitiver Pretest zu Erinnerungsprozessen bei Weiterbildungsereignissen," IAB Discussion Paper 201020, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    16. Achatz, Juliane & Trappmann, Mark, 2011. "Arbeitsmarktvermittelte Abgänge aus der Grundsicherung : der Einfluss von personen- und haushaltsgebundenen Barrieren," IAB Discussion Paper 201102, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    17. Bahal, G. & Shrivastava, A., 2016. "Labor Market Effects of Inconsistent Policy Interventions: Evidence from India’s Employment Guarantees," Cambridge Working Papers in Economics 1669, Faculty of Economics, University of Cambridge.
    18. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2013. "Gegen eine rückwärtsgewandte Wirtschaftspolitik. Jahresgutachten 2013/14," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201314, April.
    19. Fongoni, Marco & Dickson, Alex, 2015. "A Theory of Wage Setting Behavior," SIRE Discussion Papers 2015-57, Scottish Institute for Research in Economics (SIRE).
    20. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2013. "The determinants of downward wage rigidity: Some methodological considerations and new empirical evidence," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    Downward Nominal Wage Rigidity; Wage Stickiness; Wage Compression; Unconditional Quantile Regression;

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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