Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/75706
Authors: 
Holden, Steinar
Year of Publication: 
2001
Series/Report no.: 
CESifo Working Paper 481
Abstract: 
In most European countries, money wages are given in collective agreements or individual employment contracts, and the employer cannot unilaterally cut wages, even after the expiration of a collective agreement. Ceteris paribus, workers have a stronger bargaining position when they try to prevent a cut in money wages. If inflation is so low that some money wages have to be cut, workers‘ stronger bargaining position requires higher unemployment in equilibrium. However, inflation is more stable when money wage rigidity binds, providing an incentive for monetary policy makers to choose a low target for inflation, which is easier to fulfil.
Subjects: 
Nominal wage rigidity
labour contracts
monetary policy
inflation
equilibrium unemployment
Document Type: 
Working Paper

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