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Wage rigidity and disinflation in emerging countries

Julian Messina () and Anna Sanz-de-Galdeano

No 5863, Policy Research Working Paper Series from The World Bank

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: Labor Markets; Income; Economic Theory&Research; Environmental Economics&Policies; Labor Policies (search for similar items in EconPapers)
Date: 2011-10-01
New Economics Papers: this item is included in nep-dev, nep-lab and nep-mac
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Related works:
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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