The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach
National Bank of Belgium Working Paper No. 191
28 Pages Posted: 22 Sep 2010 Last revised: 27 Sep 2010
There are 3 versions of this paper
The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach
The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach
Date Written: June 30, 2010
Abstract
This paper presents estimates based on individual data on 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 any rigidity. We evaluate the role of worker and firm characteristics in shaping wage rigidities. We also confront our estimates of wage rigidities with 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 centralised wage formation reduces the degree of real wage rigidity. This finding suggests that some degree of decentralisation within centralised countries allows firms to adjust wages downwards, when business conditions take a turn for the worse.
Keywords: wage rigidity, wage-bargaining institutions
JEL Classification: J31
Suggested Citation: Suggested Citation
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