Wage Rigidity and Disinflation in Emerging Countries

43 Pages Posted: 20 Apr 2016

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2011

Abstract

This paper examines the consequences of rapid disinflation for downward wage rigidities in two emerging countries, Brazil and Uruguay, relying on high quality matched employer-employee administrative data. Downward nominal wage rigidities are more important in Uruguay, while wage indexation is dominant in Brazil. Two regime changes are observed during the sample period, 1995-2004: (i) in Uruguay wage indexation declines, while workers' resistance to nominal wage cuts becomes more pronounced; and (ii) in Brazil, the introduction of inflation targeting by the Central Bank in 1999 shifts the focal point of wage negotiations from changes in the minimum wage to expected inflation. These regime changes cast doubts on the notion that wage rigidity is structural in the sense of Lucas (1976).

Keywords: Labor Markets, Income, Economic Theory & Research, Environmental Economics & Policies, Labor Policies

Suggested Citation

Messina, Julián and Sanz-de-Galdeano, Anna, Wage Rigidity and Disinflation in Emerging Countries (October 1, 2011). World Bank Policy Research Working Paper No. 5863. Available at SSRN: https://ssrn.com/abstract=1952492

Julián Messina (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Anna Sanz-de-Galdeano

affiliation not provided to SSRN

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