Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/44167 
Year of Publication: 
2010
Series/Report no.: 
IZA Discussion Papers No. 5126
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
Focusing on the compression of wage cuts, many empirical studies find a high degree of downward nominal wage rigidity (DNWR). However, the resulting macroeconomic effects seem to be surprisingly weak. This contradiction can be explained within an intertemporal framework in which DNWR not only prevents nominal wage cuts but also induces firms to compress wage increases. We analyze whether a compression of wage increases occurs when DNWR is binding by applying Unconditional Quantile Regression and Seemingly Unrelated Regression to a data set comprising more than 169 million wage changes. We find evidence for a compression of wage increases and only very small effects of DNWR on average real wage growth. The results indicate that DNWR does not provide a strong argument against low inflation targets.
Subjects: 
downward nominal wage rigidity
wage stickiness
wage compression
unconditional quantile regression
JEL: 
E24
E31
J31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
308.56 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.