How Wages Change: Micro Evidence from the International Wage Flexibility Project

29 Pages Posted: 18 Oct 2007

See all articles by William T. Dickens

William T. Dickens

Northeastern University - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Boston; Brookings Institution

Lorenz Goette

University of Lausanne; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Erica L. Groshen

Federal Reserve Bank of New York; IZA Institute of Labor Economics

Steinar Holden

University of Oslo - Department of Economics; Norges Bank; CESifo (Center for Economic Studies and Ifo Institute)

Julián Messina

University of Girona; Foundation for Applied Economic Research (FEDEA); IZA Institute of Labor Economics

Mark E. Schweitzer

Federal Reserve Bank of Cleveland

Jarkko Turunen

International Monetary Fund

Melanie E. Ward-Warmedinger

European Central Bank (ECB); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: December 2006

Abstract

How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals' earnings in 31 different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries.

Keywords: wage setting, wage change distributions, downward nominal wage rigidity, downward real wage rigidity

JEL Classification: E3, J3, J5

Suggested Citation

Dickens, William T. and Goette, Lorenz F. and Groshen, Erica L. and Holden, Steinar and Messina, Julián and Schweitzer, Mark E. and Turunen, Jarkko and Ward-Warmedinger, Melanie E., How Wages Change: Micro Evidence from the International Wage Flexibility Project (December 2006). FRB of Cleveland Working Paper No. 06-20. Available at SSRN: https://ssrn.com/abstract=1022167 or http://dx.doi.org/10.2139/ssrn.1022167

William T. Dickens (Contact Author)

Northeastern University - Department of Economics ( email )

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Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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Brookings Institution ( email )

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Lorenz F. Goette

University of Lausanne ( email )

Department of Economics
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Lausanne, 1015
Switzerland
(021) 692'3496 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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Bonn, D-53072
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HOME PAGE: http://www.iza.org

Erica L. Groshen

Federal Reserve Bank of New York ( email )

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New York, NY 10045
United States
212-720-7685 (Phone)

HOME PAGE: http://www.newyorkfed.org/research/economists/groshen/index.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Steinar Holden

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
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+47 22 85 50 35 (Fax)

HOME PAGE: http://folk.uio.no/~sholden/

Norges Bank ( email )

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Oslo, N-0107
Norway

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Julián Messina

University of Girona ( email )

Girona, 17071
Spain

Foundation for Applied Economic Research (FEDEA)

Jorge Juan 46
Madrid, 28001
Spain

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mark E. Schweitzer

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
P.O. Box 6387
Cleveland, OH 44101-1387
United States
216-579-2014 (Phone)
216-579-3050 (Fax)

Jarkko Turunen

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Melanie E. Ward-Warmedinger

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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