Wage Rigidity, Institutions, and Inflation

Univ. of Oslo Dept. of Economics Memorandum No. 03/2009

37 Pages Posted: 26 Jul 2009

See all articles by Steinar Holden

Steinar Holden

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

Fredrik Wulfsberg

Oslo Business School; Oslo Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 22, 2009

Abstract

A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries. However, dnwr for individual workers may induce downward rigidity or “a floor” for the aggregate wage growth at positive or negative levels. Aggregate wage growth may be below zero because of compositional effects, for example that old, high-wage workers are replaced by young low-wage workers. DNWR may also lead to a positive growth in aggregate wages because of changes in relative wages. We explore industry data for 19 OECD countries, over the period 1971-2006. We find evidence for floors on nominal wage growth at 6 percent and lower in the 1970s and 1980s, at one percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country-years with strict employment protection legislation, high union density, centralised wage setting and high inflation.

Keywords: wage inflation, downward nominal wage rigidity, OECD, wage setting

JEL Classification: J3, J5, C14, C15, E31

Suggested Citation

Holden, Steinar and Wulfsberg, Fredrik and Wulfsberg, Fredrik, Wage Rigidity, Institutions, and Inflation (January 22, 2009). Univ. of Oslo Dept. of Economics Memorandum No. 03/2009, Available at SSRN: https://ssrn.com/abstract=1438398 or http://dx.doi.org/10.2139/ssrn.1438398

Steinar Holden (Contact Author)

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Fredrik Wulfsberg

Oslo Business School ( email )

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