How Robust are Nominal Wage Rigidities?

Ernst Fehr and Lorenz Goette

No 71, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: Several studies indicate that firms are reluctant to cut nominal wages during periods of relatively high nominal per capita GDP growth. It has been argued, however, that in an environment with a low nominal per capita GDP growth, i.e., when nominal wage cuts become customary, firms would no longer hesitate to cut nominal pay. To examine this argument we use data from Switzerland where nominal GDP growth has been very low between 1991 and 1997. It turns out that the rigidity of nominal wages is a robust phenomenon that does not vanish but even increases as inflation decreases. Nominal wage rigidity constitutes a considerable obstacle to real wage adjustments. Our estimates indicate that wage rigidity is almost complete for full-time workers who stay with the same employer, but we find little evidence of nominal rigidities for workers who switch employers. We also find evidence that, in the absence of downward nominal rigidity, real wages would indeed be quite responsive to unemployment.

Date: 2000-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://fmwww.bc.edu/RePEc/es2000/0071.pdf main text (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:ecm:wc2000:0071

Access Statistics for this paper

More papers in Econometric Society World Congress 2000 Contributed Papers from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().