How are Firms' Wages and Prices Linked: Survey Evidence in Europe

National Bank of Belgium Working Paper No. 174

43 Pages Posted: 28 Sep 2010

See all articles by Martine Druant

Martine Druant

National Bank of Belgium

Silvia Fabiani

Bank of Italy

Gabor Kezdi

Central European University (CEU) - Department of Economics

Ana Lamo

European Central Bank (ECB)

Fernando Martins

Bank of Portugal - Research Department; University of Lisbon - School of Economics and Management; Universidade Lusíada, Lisboa

Roberto Sabbatini

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: August 27, 2009

Abstract

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter exhibits also a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.

Keywords: survey, wage rigidity, price rigidity, indexation, institutions, time dependent

JEL Classification: D21, E30, J31

Suggested Citation

Druant, Martine and Fabiani, Silvia and Kezdi, Gabor and Lamo, Ana and Martins, Fernando and Sabbatini, Roberto, How are Firms' Wages and Prices Linked: Survey Evidence in Europe (August 27, 2009). National Bank of Belgium Working Paper No. 174. Available at SSRN: https://ssrn.com/abstract=1683899 or http://dx.doi.org/10.2139/ssrn.1683899

Martine Druant (Contact Author)

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Silvia Fabiani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Gabor Kezdi

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary

Ana Lamo

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Fernando Martins

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal

University of Lisbon - School of Economics and Management ( email )

Rua do Quelhas, n.º 6
Lisbon, 1200-781
Portugal

Universidade Lusíada, Lisboa ( email )

Rua da Junqueira, 188 - 198
Lisboa, 1349-001
Portugal

Roberto Sabbatini

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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