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The Heterogeneous Cost of Wage Rigidity: Evidence and Theory

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  • Faia, Ester
  • Pezone, Vincenzo

Abstract

Using a unique confidential contract level dataset merged with firm-level asset price data, we find robust evidence that firms' stock market valuations and employment levels respond more to monetary policy announcements the higher the degree of wage rigidity. Data on the renegotiations of collective bargaining agreements allow us to construct an exogenous and accurate measure of wage rigidity. The amplification induced by wage rigidity is stronger for firms with high labor intensity and low profitability. There are clear distributional consequences of monetary policy. We rationalize the evidence through a model in which firms in different sectors feature different degrees of wage rigidity due to staggered renegotiations vis-a-vis unions.

Suggested Citation

  • Faia, Ester & Pezone, Vincenzo, 2020. "The Heterogeneous Cost of Wage Rigidity: Evidence and Theory," SAFE Working Paper Series 242, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:242
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    Cited by:

    1. Effrosyni Adamopoulou & Ernesto Villanueva, 2020. "Wage Determination and the Bite of Collective Contracts in Italy and Spain: Evidence from the Metalworking Industry," CRC TR 224 Discussion Paper Series crctr224_2020_176, University of Bonn and University of Mannheim, Germany.
    2. Bernardo Fanfani, 2019. "The Employment Effects of Collective Bargaining," Working papers 064, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    3. Javier Bianchi & Jorge Mondragon, 2018. "Monetary Independence and Rollover Crises," NBER Working Papers 25340, National Bureau of Economic Research, Inc.

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