The Cost of Wage Rigidity

Ester Faia and Vincenzo Pezone

The Review of Economic Studies, 2024, vol. 91, issue 1, 301-339

Abstract: Private efficiency of wage rigidity has taken centre stage in economics. Measuring its effects has proven elusive for lack of actual wage data. Using a unique confidential labour contract-level dataset matched with firm-level high-frequency asset prices, we find robust evidence that firms’ stock prices and employment fluctuate more in response to monetary policy announcements, the higher the degree of wage rigidity. Hand-collected information on the periods across renegotiations of collective bargaining agreements allow us to construct an accurate and predetermined measure of wage rigidity. We find that the amplification induced by wage rigidity is stronger for firms with high labour intensity, low profitability, and a large share of workers with more rigid contracts.

Keywords: Matched employer–employee dataset; Firms’ cost of wage rigidity; Predetermined measure of wage rigidity; High-frequency identification; Heterogeneous wage rigidity (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (6)

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Working Paper: The Cost of Wage Rigidity (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:91:y:2024:i:1:p:301-339.

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