The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe

Steinar Holden

No 8865, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In most European countries, the prevailing terms of employment, including the nominal wage, can only be changed by mutual consent. I show that this feature implies that workers have a strategic advantage in the wage negotiations when they try to prevent a cut in nominal wages. If inflation is so low that some nominal wages have to be cut, the strategic advantage of the workers' induces higher unemployment in equilibrium. The upshot is a long run tradeoff between inflation and unemployment for low levels of inflation. The prediction that low inflation involves higher unemployment in Europe but not in the US, is consistent with previous empirical findings.

JEL-codes: J5 J6 (search for similar items in EconPapers)
Date: 2002-03
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published as Holden, Steinar. "The Costs Of Price Stability: Downward Nominal Wage Rigidity In Europe," Economica, 2004, v71(281,Feb), 183-208.

Downloads: (external link)
http://www.nber.org/papers/w8865.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8865

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8865

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().