How Strong is the Case for Downward Real Wage Rigidity?

Holden, Steinar; Wulfsberg, Fredrik

doi:10.2139/ssrn.1002387

Cited by 12 publications

(16 citation statements)

References 44 publications

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“…Indeed, our data show a negative correlation between wage cuts across countries and the percentage of workers covered by collective agreements (see also Figure 1). This is in line with results on the frequency of wage cuts in industry data across countries reported by Holden and Wulfsberg (2009).…”

Section: Survey Design and Data Descriptionsupporting

confidence: 92%

Why Firms Avoid Cutting Wages

Caju¹,

Κοσμά²,

Lawless³

et al. 2015

ILR Review

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Firms very rarely cut nominal wages, even in the face of considerable negative economic shocks. The authors of this article use a unique survey of 14 European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why the firms avoid cutting wages. They examine how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations for the infrequency of wage cuts. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in Western European (EU-15) countries but were one of the lowest-ranked obstacles in the new EU member-states in Central and Eastern Europe.

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Section: Survey Design and Data Descriptionsupporting

confidence: 92%

Why Firms Avoid Cutting Wages

Caju¹,

Κοσμά²,

Lawless³

et al. 2015

ILR Review

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show abstract

“…In contrast, several studies have found empirical evidence for the existence of considerable downward real wage rigidity in a number of OECD countries (see Christofides and Li, ; Bauer et al ., ; Dickens et al ., ). Furthermore, Holden and Wulfsberg () have found support for some DRWR in the same industry data. In view of the problem of distinguishing between real and nominal downward rigidity, we would also expect that some of the rigidity that we find might, in fact, be caused by real rigidity.…”

Section: Estimates Of Dnwrmentioning

confidence: 88%

Wage Rigidity, Inflation, and Institutions

Holden

Wulfsberg²

2014

Scandinavian J Economics

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We study the possible existence of downward nominal wage rigidity (DNWR) at wage growth rates different from zero in aggregate data. Even if DNWR prevails at zero for individual workers, compositional effects might lead to falling aggregate wages, while changes in relative wages combined with DNWR might lead to positive aggregate wage growth. We explore industry data for 19 OECD countries, over the 1971-2006 period. We find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s, at 1 percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country-years with strict employment protection legislation, high union density, centralized wage setting, and high inflation.

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“…Together with (11), (12) determines the perceived elasticities of prices with respect to wages on the part of wage setters under the two monetary regimes and different wage bargaining arrangements.…”

Section: Monetary Policymentioning

confidence: 99%

“…From Table 3, it is straightforward to derive under what conditions interior solutions with a 12 Similarily, if the tradables sector is wage leader and this sector is the larger, i.e. 1 − γ > 1 2 , then the critical value is again negative (first row, second column in Table 5).…”

Section: Potential Interior Solutions With a Higher Wage For The Follmentioning

confidence: 99%

“…We now assume that the utility of an employed worker in sector i , as perceived by the union, depends on both the real wage received and on a wage comparison norm, denoted by w n 11 . Following Holden and Wulfsberg (2007), the assumption is that the perceived utility of an employed worker in sector i is , where α k measures the importance of wage comparisons. In accordance with the Kahneman–Tversky hypothesis of loss aversion, α k takes on different values depending on whether or not the wage exceeds the norm.…”

Section: Wage Setting With Wage Normsmentioning

confidence: 99%

See 1 more Smart Citation

Pattern Bargaining and Wage Leadership in a Small Open Economy*

Calmfors

Larsson

2013

Scandinavian J Economics

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Pattern bargaining where the tradables (manufacturing) sector acts as wage leader is a common form of wage bargaining in Europe. Our results question the conventional wisdom that such a bargaining set-up produces wage restraint. We find that all forms of pattern bargaining give the same macroeconomic outcomes as uncoordinated bargaining under inflation targeting and a flexible exchange rate. Under monetary union (a fixed exchange rate) wage leadership for the non-tradables sector is conducive to wage restraint and high employment, whereas wage leadership for the tradables sector is not. Loss aversion and comparison thinking in wage setting, where unions evaluate the utility of the wages of their members relative to a wage norm, may lead the follower to set the same wage as the leader. Such equilibria can arise when the leader sector is the smaller sector and promote high employment.

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How Strong is the Case for Downward Real Wage Rigidity?

Cited by 12 publications

References 44 publications

Why Firms Avoid Cutting Wages

Why Firms Avoid Cutting Wages

Wage Rigidity, Inflation, and Institutions

Pattern Bargaining and Wage Leadership in a Small Open Economy*

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