How are firms’ wages and prices linked - survey evidence in Europe

Martine Druant (), Silvia Fabiani (), Gabor Kezdi (), Ana Lamo (), Fernando Manuel Monteiro Martins () and Roberto Sabbatini ()
Additional contact information
Martine Druant: National Bank of Belgium, boulevard de Berlaimont 14, B-1000 Brussels, Belgium., http://www.nbb.be/pub/Home.htm?l=en
Silvia Fabiani: Bank of Italy, Via Nazionale 91, 00184 Rome, Italy., http://www.bancaditalia.it/
Gabor Kezdi: Central European University and Magyar Nemzeti Bank, Szabadság tér 8-9, 1850 Budapest, V., Hungary., http://www.ceu.hu/
Ana Lamo: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html
Roberto Sabbatini: Bank of Italy, Via Nazionale 91, 00184 Rome, Italy., http://www.bancaditalia.it/

No 1084, Working Paper Series from European Central Bank

Abstract: This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter exhibits also a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity. JEL Classification: D21, E30, J31.

Keywords: survey; wage rigidity; price rigidity; indexation; institutions; time dependent. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-lab
Date: 2009-08

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Related works:
Working Paper: How are firms’ wages and prices linked: survey evidence in Europe (2009)
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