Nominal Wage Rigidity in Contract Data: A Parametric Approach
40 Pages Posted: 13 May 2003
Date Written: July 11, 2002
Using wage agreements reached in the Canadian unionized sector during 1976-99, a period of high as well as exceptionally low inflation, we consider how histograms of wage adjustment change as inflation reaches the low levels of the 1990s. The histograms and parametric tests suggest that wage adjustment is characterized by downward nominal rigidity and significant spikes at zero. There is some evidence of modest menu-cost effects. We examine whether the rigidity features of wage adjustment are sensitive to indexation provisions and investigate whether the distinction between short and long contracts is useful.
Keywords: Low wage inflation, nominal rigidity, menu-costs
JEL Classification: E31
Suggested Citation: Suggested Citation