The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach

24 Pages Posted: 17 Jul 2010

See all articles by Julian Messina

Julian Messina

World Bank

Philip Du Caju

National Bank of Belgium

Claudia Duarte

Bank of Portugal - Economic Research Department

Niels Lynggaard Hansen

National Bank of Denmark

Mario Izquierdo

Banco de España

Multiple version iconThere are 3 versions of this paper

Date Written: July 16, 2010

Abstract

This paper presents estimates based on individual data of downward nominal and real wage rigidities for thirteen sectors in Belgium, Denmark, Spain and Portugal. Our methodology follows the approach recently developed for the International Wage Flexibility Project, whereby resistance to nominal and real wage cuts is measured through departures of observed individual wage change histograms from an estimated counterfactual wage change distribution that would have prevailed in the absence of rigidity. We evaluate the role of worker and firm characteristics in shaping wage rigidities. We also confront our estimates of wage rigidities to structural features of the labour markets studied, such as the wage bargaining level, variable pay policy and the degree of product market competition. We find that the use of firm-level collective agreements in countries with rather centralized wage formation reduces the degree of real wage rigidity. This finding suggests that some degree of decentralization within highly centralized countries allows firms to adjust wages downwards, when business conditions turn bad.

Keywords: wage rigidity, wage-bargaining institutions

JEL Classification: J31

Suggested Citation

Messina, Julián and Du Caju, Philip and Duarte, Claudia and Hansen, Niels Lynggaard and Izquierdo, Mario, The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach (July 16, 2010). Banco de Espana Working Paper No. 1022, Available at SSRN: https://ssrn.com/abstract=1641081 or http://dx.doi.org/10.2139/ssrn.1641081

Julián Messina

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Philip Du Caju

National Bank of Belgium ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Claudia Duarte

Bank of Portugal - Economic Research Department ( email )

R. do Ouro 27
Lisboa, 1100-150
Portugal

HOME PAGE: http://www.bportugal.pt/en-US/EstudosEconomicos/EconomistasInvestigadores/Pages/ClaudiaDuarte.aspx

Niels Lynggaard Hansen

National Bank of Denmark ( email )

Havnegade 5
DK-1093 Copenhagen K
Denmark

Mario Izquierdo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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