Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data

22 Pages Posted: 27 Nov 2007

See all articles by Thomas K. Bauer

Thomas K. Bauer

Rhine-Westphalia Institute for Economic Research (RWI-Essen); University of Bochum - Faculty of Economics; IZA Institute of Labor Economics

Holger Bonin

IZA Institute of Labor Economics; ZEW – Leibniz Centre for European Economic Research

Lorenz Goette

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

Uwe Sunde

Ludwig Maximilian University of Munich (LMU)

Abstract

This article examines real and nominal wage rigidities in West Germany. Using regionally disaggregated register data for 1975-2001, we estimate the extent of both types of wage rigidities from the observed distribution of individual wage changes, taking into account possible measurement error. The fraction of workers facing wage increases that are caused by nominal and particularly real wage rigidity is substantial. The extent of real rigidity rises with inflation and falls with regional unemployment, whereas the opposite holds for nominal rigidity. Overall, the incidence of wage rigidity, which accelerates unemployment growth, is most likely minimized in a moderate inflation environment.

Suggested Citation

Bauer, Thomas K. and Bonin, Holger and Goette, Lorenz F. and Sunde, Uwe, Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data. Economic Journal, Vol. 117, Issue 524, pp. F508-F529, November 2007, Available at SSRN: https://ssrn.com/abstract=1032365 or http://dx.doi.org/10.1111/j.1468-0297.2007.02094.x

Thomas K. Bauer (Contact Author)

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

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IZA Institute of Labor Economics ( email )

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Holger Bonin

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 303 (Phone)
+49 228 3894 510 (Fax)

ZEW – Leibniz Centre for European Economic Research

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D-68034 Mannheim, 68034
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Lorenz F. Goette

University of Lausanne ( email )

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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

HOME PAGE: http://www.iza.org

Uwe Sunde

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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