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Nominal wage rigidity in Europe: estimates and institutional causes

Author

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  • Orietta DESSY
Abstract
In this paper we construct and compare different measures of nominal wage rigidity for the EU countries using the 1994-2000 waves of the European Community Household Panel. The observed distributions of nominal wage changes show a relevant percentage of nominal wage cuts and freezes across countries. When measurement error is taken into account in an econometric model of wage changes appropriately estimated, it explains almost the totality of wage cuts observed. Therefore the extent of nominal wage rigidity is quite high in Europe. Institutional causes of wage rigidity are investigated, finding an ''hump-shaped'' relationship between nominal wage flexibility and both employment protection legislation and coordination. On the other hand, an ''u-shaped'' impact of union coverage on measures of downward wage rigidity is found

Suggested Citation

  • Orietta DESSY, 2005. "Nominal wage rigidity in Europe: estimates and institutional causes," Departmental Working Papers 2005-09, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2005-09
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    File URL: http://wp.demm.unimi.it/files/wp/2005/DEMM-2005_009wp.pdf
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    References listed on IDEAS

    as
    1. Groth, Charlotta & Johansson, Asa, 2004. "Bargaining structure and nominal wage flexibility," European Economic Review, Elsevier, vol. 48(6), pages 1349-1365, December.
    2. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084, Elsevier.
    3. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe (new title: The costs of price stability - downward nominal wage rigidity in Europe)," CESifo Working Paper Series 1177, CESifo.
    4. Steinar Holden & Fredrik Wulfsberg, 2004. "Downward Nominal Wage Rigidity in Europe," Working Paper 2004/5, Norges Bank.
    5. Francis Kramarz, 2001. "Rigid Wages: What Have We Learnt from Microeconometric Studies?," International Economic Association Series, in: Jacques Drèze (ed.), Advances in Macroeconomic Theory, chapter 10, pages 194-216, Palgrave Macmillan.
    6. Steinar Holden, 2005. "Wage Formation under Low Inflation," Springer Books, in: Hannu Piekkola & Kenneth Snellman (ed.), Collective Bargaining and Wage Formation, pages 39-57, Springer.
    7. Stephen Nickell & Glenda Quintini, 2003. "Nominal wage rigidity and the rate of inflation," Economic Journal, Royal Economic Society, vol. 113(490), pages 762-781, October.
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    11. repec:bla:econom:v:71:y:2004:i:281:p:183-208 is not listed on IDEAS
    12. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
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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).
    2. Vistesen, Claus, 2010. "Quantifying and Correcting Eurozone Imbalances Fighting the Debt Snowball," MPRA Paper 22943, University Library of Munich, Germany.
    3. Fuss, Catherine & Wintr, Ladislav & Du Caju, Philip, 2007. "Downward wage rigidity for different workers and firms: an evaluation for Belgium using the IWFP procedure," Working Paper Series 840, European Central Bank.

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    More about this item

    Keywords

    Nominal wage rigidity; measurement error; intercountry comparison; institutions in labor markets;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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