Employment Effects Of Nominal-Wage Rigidity: An Examination Using Wage-Settlements Data

Umar Faruqui

Staff Working Papers from Bank of Canada

Abstract: The argument advocating a moderate level of inflation based on the downward nominal-wage rigidity (DNWR) hypothesis rests on three factors: its presence, extent, and negative impact in the labour market. This paper focuses on the employment effect of DNWR. It reviews the evidence presented by Simpson, Cameron, and Hum (1998), in light of a potential bias problem associated with their reduced-form model. We describe modifications to their employment model that aim to better isolate the effects of DNWR on employment growth. Analysis shows that empirical evidence in Simpson, Cameron, and Hum (1998) is sensitive to model specification. In contrast to Simpson, Cameron, and Hum (1998), who found—economically and statistically—significant employment costs for DNWR, in most of our specifications DNWR has no significant effect on employment growth.

Keywords: Labour; markets (search for similar items in EconPapers)
JEL-codes: C23 J23 J30 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2000
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:00-14

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