The Heterogeneous Cost of Wage Rigidity: Evidence and Theory

64 Pages Posted: 31 Jan 2019 Last revised: 5 Feb 2020

See all articles by Ester Faia

Ester Faia

Goethe University Frankfurt; Centre for Economic Policy Research (CEPR)

Vincenzo Pezone

Goethe University Frankfurt - Research Center SAFE

Date Written: January 2020

Abstract

Using a unique confidential contract level dataset merged with firm-level asset price data, we find robust evidence that firms' stock market valuations and employment levels respond more to monetary policy announcements the higher the degree of wage rigidity. Data on the renegotiations of collective bargaining agreements allow us to construct an exogenous and accurate measure of wage rigidity. The amplification induced by wage rigidity is stronger for firms with high labor intensity and low profitability. There are clear distributional consequences of monetary policy. We rationalize the evidence through a model in which firms in different sectors feature different degrees of wage rigidity due to staggered renegotiations vis-a-vis unions.

Keywords: heterogeneous monetary policy response, distributional consequences of monetary policy, employer-employee level dataset, monetary policy surprise shocks, heterogeneous wage rigidity

Suggested Citation

Faia, Ester and Pezone, Vincenzo, The Heterogeneous Cost of Wage Rigidity: Evidence and Theory (January 2020). SAFE Working Paper No. 242, Available at SSRN: https://ssrn.com/abstract=3326397 or http://dx.doi.org/10.2139/ssrn.3326397

Ester Faia

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Vincenzo Pezone (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
+49 69 798 33706 (Phone)

HOME PAGE: http://sites.google.com/site/vpezone/

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