International Adjustment with Wage Rigidity

38 Pages Posted: 31 May 2004 Last revised: 13 Aug 2010

See all articles by William H. Branson

William H. Branson

Princeton University - Woodrow Wilson School of Public and International Affairs; National Bureau of Economic Research (NBER)

Julio J. Rotemberg

Harvard University, Business, Government and the International Economy Unit (deceased); National Bureau of Economic Research (NBER) (deceased)

Date Written: November 1979

Abstract

Two of the puzzling macroeconomic phenomena of the 1970s have been the persistent stagnation in Europe, and the disagreement between the U.S. and Europe on the feasibility of recovery by demand expansion. This paper develops the hypothesis that the source of both the stagnation and the policy differences is money-wage stickiness in the U.S. and real-wage stickiness in Europe and Japan. A real wage which is sticky above its equilibrium level in Europe and Japan would account for stagnation and infeasibility of recovery by demand expansion. The theoretical models are developed in both the one-commodity and two-commodity-bundle cases. The empirical results confirm that in the U.S. the nominal wage adjusts slowly toward equilibrium, while in Germany, Italy, Japan, and the U.K. the real wage adjusts slowly.

Suggested Citation

Branson, William H. and Rotemberg, Julio J., International Adjustment with Wage Rigidity (November 1979). NBER Working Paper No. w0406. Available at SSRN: https://ssrn.com/abstract=262036

William H. Branson (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

409 Robertson Hall
Princeton, NJ 08544-1021
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609-258-4828 (Phone)
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National Bureau of Economic Research (NBER)

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Julio J. Rotemberg

Harvard University, Business, Government and the International Economy Unit (deceased) ( email )

Cambridge, MA
United States
617-495-1015 (Phone)
617-496-5994 (Fax)

National Bureau of Economic Research (NBER) (deceased)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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