EconPapers    
Economics at your fingertips  
 

The Robustness and Real Consequences of Nominal Wage Rigidity

Ernst Fehr

No 2516, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Recent studies found evidence for nominal wage rigidity during periods of relatively high nominal GDP growth. It has been argued, however, that in an environment with low nominal GDP growth, when nominal wage cuts become customary, workers? opposition to nominal cuts would erode and, hence, firms would no longer hesitate to reduce nominal pay. If this argument is valid nominal wage rigidities are largely irrelevant because in a high-growth environment there is little need to cut nominal pay while in a low-growth environment the necessary cuts would occur. To examine this argument we use data from Switzerland where nominal GDP growth has been very low for many years in the 1990s. We find that the rigidity of nominal wages is a robust phenomenon that does not vanish in a low growth environment. In addition, it constitutes a considerable obstacle to real wage adjustments. In the absence of downward nominal rigidity, real wages would indeed be quite responsive to unemployment. Moreover, the wage sweep-ups caused by nominal rigidity are strongly correlated with unemployment suggesting that downward rigidity of nominal wages indeed contributes to unemployment.

Keywords: Downward nominal wage rigidity; Unemployment; Wage flexibility (search for similar items in EconPapers)
JEL-codes: E31 E52 J30 (search for similar items in EconPapers)
Date: 2000-08
References: Add references at CitEc
Citations: View citations in EconPapers (57)

Downloads: (external link)
https://cepr.org/publications/DP2516 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Robustness and real consequences of nominal wage rigidity (2005) Downloads
Working Paper: Robustness and Real Consequences of Nominal Wage Rigidity (2000) Downloads
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:cpr:ceprdp:2516

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2516

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-19
Handle: RePEc:cpr:ceprdp:2516