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Wage Rigidity and Disinflation in Emerging Countries

Julian Messina () and Anna Sanz-de-Galdeano

No 5778, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines the consequences of rapid disinflation for downward wage rigidities in two emerging countries, Brazil and Uruguay, relying on high quality matched employer-employee administrative data. Downward nominal wage rigidities are more important in Uruguay, while wage indexation is dominant in Brazil. Two regime changes are observed during the sample period, 1995-2004: (i) in Uruguay wage indexation declines, while workers' resistance to nominal wage cuts becomes more pronounced; and (ii) in Brazil, the introduction of inflation targeting by the Central Bank in 1999 shifts the focal point of wage negotiations from changes in the minimum wage to expected inflation. These regime changes cast doubts on the notion that wage rigidity is structural in the sense of Lucas (1976).

Keywords: matched employer-employee data; indexation; downward wage rigidity; emerging economies (search for similar items in EconPapers)
JEL-codes: J30 E24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2011-06
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Published in: American Economic Journal: Macroeconomics, 2014, 6 (1), 102-133

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Journal Article: Wage Rigidity and Disinflation in Emerging Countries (2014) Downloads
Working Paper: Wage rigidity and disinflation in emerging countries (2011) Downloads
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