Is There Downward Nominal Wage Rigidity in the Canadian Phillips Curve?

Alan Stark and Timothy Sargent

Working Papers-Department of Finance Canada from Department of Finance Canada

Abstract: This paper examines the evidence for downward nominal wage rigidity in provincial wage Phillips curves over the period 1981–1999. Three Phillips curve models are used: a standard model; a model with hysteresis; and a model in which downward nominal wage rigidity is explicitly modelled. In each model the paper finds that there is significant evidence of downward nominal wage rigidity over the period studied. Simulations of the downward nominal wage rigidity Phillips curve indicate that reducing inflation by one percentage point from its 1999 level would lead to an increase in the unemployment rate of about one percentage point.

Le document traite des éléments probants de la rigidité à la baisse des salaires nominaux des courbes de Phillips des salaires provinciaux pour la période comprise entre 1981 et 1999. Trois modèles de courbes de Phillips sont utilisés, à savoir un modèle standard, un modèle d’hystérèse et un modèle explicite de la rigidité à la baisse des salaires nominaux. Selon les constatations du document, chaque modèle présente d’importants éléments probants de la rigidité à la baisse des salaires nominaux au cours de la période visée. Les simulations de la courbe de Phillips de la rigidité à la baisse des salaires nominaux montrent qu’une réduction d’un point de pourcentage de l’inflation par rapport à son niveau de 1999 entraîne une augmentation à peu près correspondante du taux de chômage.

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