Nominal Wage Rigidity in Contract Data: A Parametric Approach

Abstract

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.

Hyperbolic Discounting and the Phillips Curve

“…The empirical evidence on indexation is striking, Card (1986), writing about a period when average inflation was well over the top of the range we consider, writes that “perhaps no more than 10% of all U.S. workers are covered by cost‐of‐living provisions.” This surprising result is because indexation is only observed in union contracts, and, as Card (1983) reports, only in around 60% of these, and “escalation provisions are rare in the non‐union sector.” Further, while one can find evidence of quarterly COLAs, the vast majority seem to be annual (Kaufman and Woglom 1986, Vroman 1985). More recently, Christofides and Leung (2003), looking at Canadian data from 1976 to 1999, write that “very few contracts contain COLA clauses.”…”

Always Poor or Never Poor and Nothing in Between? Duration of Child Poverty in Germany

“…Using additional micro data they found wage cuts to be more common for employees of smaller firms and non‐unionized employees. Christofides and Leung (2003) applied the histogram location approach to Canadian data finding strong nominal wage rigidity, although this might be due partly to the use of union contract data. In a somewhat different context, Iara and Traistaru (2004) analysed wage flexibility in EU accession countries using a Phillips curve approach and found only moderate unemployment elasticities of wages for most accession countries.…”

Hyperbolic Discounting and Positive Optimal Inflation

“…Further, while one can …nd evidence of quarterly cost of living (COLA) adjustments, the vast majority seem to be annual (Kaufman andWoglom, 1986, Vroman, 1985). More recently, Christo…des and Leung (2003), looking at Canadian data from 1976 -1999, write that "very few contracts contain COLA clauses". So while wage indexation is a feature of very high in ‡ation rates (Marinakis, 1997), it seems largely absent over the range of in ‡ation we consider.…”