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Does Downward Nominal Wage Rigidity Dampen Wage Increases?

Heiko Stüber () and Thomas Beissinger ()

No 5126, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Focusing on the compression of wage cuts, many empirical studies find a high degree of downward nominal wage rigidity (DNWR). However, the resulting macroeconomic effects seem to be surprisingly weak. This contradiction can be explained within an intertemporal framework in which DNWR not only prevents nominal wage cuts but also induces firms to compress wage increases. We analyze whether a compression of wage increases occurs when DNWR is binding by applying Unconditional Quantile Regression and Seemingly Unrelated Regression to a data set comprising more than 169 million wage changes. We find evidence for a compression of wage increases and only very small effects of DNWR on average real wage growth. The results indicate that DNWR does not provide a strong argument against low inflation targets.

Keywords: wage stickiness; wage compression; downward nominal wage rigidity; unconditional quantile regression (search for similar items in EconPapers)
JEL-codes: E24 E31 J31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2010-08
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (5) Track citations by RSS feed

Published in: European Economic Review, 2012, 56 (4), 870-887

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Related works:
Journal Article: Does downward nominal wage rigidity dampen wage increases? (2012) Downloads
Working Paper: Does downward nominal wage rigidity dampen wage increases? (2010) Downloads
Working Paper: Does downward nominal wage rigidity dampen wage increases? (2010) Downloads
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