Nominal wage rigidity in Europe: estimates and institutional causes

Orietta Dessy

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: In this paper we construct and compare different measures of nominal wage rigidity for the EU countries using the 1994-2000 waves of the European Community Household Panel. The observed distributions of nominal wage changes show a relevant percentage of nominal wage cuts and freezes across countries. When measurement error is taken into account in an econometric model of wage changes appropriately estimated, it explains almost the totality of wage cuts observed. Therefore the extent of nominal wage rigidity is quite high in Europe. Institutional causes of wage rigidity are investigated, finding an ''hump-shaped'' relationship between nominal wage flexibility and both employment protection legislation and coordination. On the other hand, an ''u-shaped'' impact of union coverage on measures of downward wage rigidity is found

Keywords: Nominal wage rigidity; measurement error; intercountry comparison; institutions in labor markets (search for similar items in EconPapers)
JEL-codes: J30 J31 J51 (search for similar items in EconPapers)
Date: 2005-01-01
New Economics Papers: this item is included in nep-eec and nep-lab
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:mil:wpdepa:2005-09

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