Wage Rigidity, Inflation, and Institutions

31 Pages Posted: 13 Mar 2014

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

Date Written: April 2014


We study the possible existence of downward nominal wage rigidity (DNWR) at wage growth rates different from zero in aggregate data. Even if DNWR prevails at zero for individual workers, compositional effects might lead to falling aggregate wages, while changes in relative wages combined with DNWR might lead to positive aggregate wage growth. We explore industry data for 19 OECD countries, over the 1971–2006 period. We find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s, at 1 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, centralized wage setting, and high inflation.

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

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

Suggested Citation

Holden, Steinar and Wulfsberg, Fredrik and Wulfsberg, Fredrik, Wage Rigidity, Inflation, and Institutions (April 2014). The Scandinavian Journal of Economics, Vol. 116, Issue 2, pp. 539-569, 2014, Available at SSRN: https://ssrn.com/abstract=2408834 or http://dx.doi.org/10.1111/sjoe.12052

Steinar Holden (Contact Author)

University of Oslo - Department of Economics ( email )

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+47 22 85 50 35 (Fax)

HOME PAGE: http://folk.uio.no/~sholden/

Norges Bank ( email )

P.O. Box 1179
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679

HOME PAGE: http://www.CESifo.de

Fredrik Wulfsberg

Oslo Business School ( email )

Pilestredet 35
Oslo, 0557

Oslo Business School ( email )

P.O. Box 4
Oslo, 0130
48401711 (Phone)
0861 (Fax)

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