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Wage Rigidity (wage + rigidity)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting94%

Selected Abstracts

Optimal Monetary Policy with Price and Wage Rigidities

ECONOMIC NOTES, Issue 1 2006
Massimiliano Marzo
In this paper, I search for an optimal configuration of parameters for variants of the Taylor rule by using an accurate second-order welfare-based method within a fully microfounded dynamic stochastic model, with price and wage rigidities, without capital accumulation. A version of the model with distortionary taxation is also explicitly tested. The model is solved up to second-order solution. Optimal rules are obtained by maximizing a conditional welfare measure, differently from what has been done in the current literature. Optimal monetary policy functions turn out to be characterized by inflation targeting parameter lower than in empirical studies. In general, the optimal values for monetary policy parameters depend on the degree of nominal rigidities and on the role of fiscal policy. When nominal rigidities are higher, optimal monetary policy becomes more aggressive to inflation. With a tighter fiscal policy, optimal monetary policy turns out to be less aggressive to inflation. Impulse-response functions based on second-order model solution show a non-affine pattern when the economy is hit by shocks of different magnitude. [source]

Real Wage Rigidities and the New Keynesian Model

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 2007
OLIVIER BLANCHARD
oil price shocks; inflation targeting; monetary policy; inflation inertia Most central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and desired output. However, the standard new Keynesian framework implies no such trade-off. In that framework, stabilizing inflation is equivalent to stabilizing the welfare-relevant output gap. In this paper, we argue that this property of the new Keynesian framework, which we call the divine coincidence, is due to a special feature of the model: the absence of nontrivial real imperfections. We focus on one such real imperfection, namely, real wage rigidities. When the baseline new Keynesian model is extended to allow for real wage rigidities, the divine coincidence disappears, and central banks indeed face a trade-off between stabilizing inflation and stabilizing the welfare-relevant output gap. We show that not only does the extended model have more realistic normative implications, but it also has appealing positive properties. In particular, it provides a natural interpretation for the dynamic inflation,unemployment relation found in the data. [source]

The Employment Effects of Severance Payments with Wage Rigidities,

THE ECONOMIC JOURNAL, Issue 506 2005
Pietro Garibaldi
Firing costs have two separate dimensions: a transfer from the firm to the laid-off worker and a tax paid outside the firm-worker pair. To avoid the ,bonding critique' most of the existing literature implicitly assumes that, in the presence of wage rigidity, transfers have the same real effects as taxes. This paper shows that this presumption is in general misplaced, especially so when the degree of wage rigidity is endogenous. The predictions of our theory find empirical support in a panel data-set of OECD countries. [source]

Nominal Wage Rigidity in Contract Data: A Parametric Approach

ECONOMICA, Issue 280 2003
Louis N. Christofides
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 changed as inflation reached 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. [source]

Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results

GERMAN ECONOMIC REVIEW, Issue 2 2010
Andreas Behr
Wage rigidity; ECHP; Sticky prices Abstract. We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1995 and 2001. The database used throughout is the User Data Base of the European Community Household Panel (ECHP). The proposed approach is based on the generalized hyperbolic distribution, which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe. [source]

Reasons for Wage Rigidity in Germany

LABOUR, Issue 2 2006
Wolfgang Franz
Based on a survey of 801 firms in Germany and an econometric analysis, we find strong support for explanations based on the effects of labour union contracts and efficiency wages that differ between skill groups. Survey respondents indicate that labour union contracts and implicit contracts are important reasons for wage rigidity for the (less) skilled. Specific human capital and negative signals for new hires are causes of the stickiness of wages for the highly skilled. Compared with US evidence, German firms seem to attach more importance to labour union contracts and specific human capital. [source]

Wage Rigidity: Measurement, Causes and Consequences,

THE ECONOMIC JOURNAL, Issue 524 2007
Lorenz Goette
Wage rigidity , the observation that wages cannot be adjusted downwards , has important implications for labour markets and macroeconomic performance. Empirical evidence on the extent, causes and consequences of wage rigidity on the individual level is relatively scant, however. This Feature presents articles that apply a new methodology to estimate the incidence and extent of nominal and real wage rigidity among the employed in three major European countries (Germany, Italy and Great Britain). The results document the pervasiveness of nominal and, particularly, real wage rigidity in different institutional and economic environments, and a recent decline in real wage rigidity. [source]

Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results

GERMAN ECONOMIC REVIEW, Issue 2 2010
Andreas Behr
Wage rigidity; ECHP; Sticky prices Abstract. We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1995 and 2001. The database used throughout is the User Data Base of the European Community Household Panel (ECHP). The proposed approach is based on the generalized hyperbolic distribution, which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe. [source]

Wage Rigidity: Measurement, Causes and Consequences,

THE ECONOMIC JOURNAL, Issue 524 2007
Lorenz Goette
Wage rigidity , the observation that wages cannot be adjusted downwards , has important implications for labour markets and macroeconomic performance. Empirical evidence on the extent, causes and consequences of wage rigidity on the individual level is relatively scant, however. This Feature presents articles that apply a new methodology to estimate the incidence and extent of nominal and real wage rigidity among the employed in three major European countries (Germany, Italy and Great Britain). The results document the pervasiveness of nominal and, particularly, real wage rigidity in different institutional and economic environments, and a recent decline in real wage rigidity. [source]

Optimal Monetary Policy with Price and Wage Rigidities

ECONOMIC NOTES, Issue 1 2006
Massimiliano Marzo
In this paper, I search for an optimal configuration of parameters for variants of the Taylor rule by using an accurate second-order welfare-based method within a fully microfounded dynamic stochastic model, with price and wage rigidities, without capital accumulation. A version of the model with distortionary taxation is also explicitly tested. The model is solved up to second-order solution. Optimal rules are obtained by maximizing a conditional welfare measure, differently from what has been done in the current literature. Optimal monetary policy functions turn out to be characterized by inflation targeting parameter lower than in empirical studies. In general, the optimal values for monetary policy parameters depend on the degree of nominal rigidities and on the role of fiscal policy. When nominal rigidities are higher, optimal monetary policy becomes more aggressive to inflation. With a tighter fiscal policy, optimal monetary policy turns out to be less aggressive to inflation. Impulse-response functions based on second-order model solution show a non-affine pattern when the economy is hit by shocks of different magnitude. [source]

Real Wage Rigidities and the New Keynesian Model

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 2007
OLIVIER BLANCHARD
oil price shocks; inflation targeting; monetary policy; inflation inertia Most central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and desired output. However, the standard new Keynesian framework implies no such trade-off. In that framework, stabilizing inflation is equivalent to stabilizing the welfare-relevant output gap. In this paper, we argue that this property of the new Keynesian framework, which we call the divine coincidence, is due to a special feature of the model: the absence of nontrivial real imperfections. We focus on one such real imperfection, namely, real wage rigidities. When the baseline new Keynesian model is extended to allow for real wage rigidities, the divine coincidence disappears, and central banks indeed face a trade-off between stabilizing inflation and stabilizing the welfare-relevant output gap. We show that not only does the extended model have more realistic normative implications, but it also has appealing positive properties. In particular, it provides a natural interpretation for the dynamic inflation,unemployment relation found in the data. [source]

Labour market adjustment a hundred years ago: the case of the Catalan textile industry, 1880,19131

ECONOMIC HISTORY REVIEW, Issue 1 2008
JORDI DOMENECH
This paper studies the way workers and firms behaved in a highly cyclical sector such as the Catalan cotton textile industry. Using firm level evidence from the late nineteenth and early twentieth centuries, the paper shows that, in spite of weak unionization and the lack of regional or local collective bargaining institutions, piece rates in cotton spinning and weaving were not subject to competitive rate cuts and remained fixed over the cycle. When facing a negative demand shock, firms adjusted by reducing output, hours of work, labour productivity, and employment. The paper finally evaluates the possible sources of wage rigidity in the industry. [source]

Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results

GERMAN ECONOMIC REVIEW, Issue 2 2010
Andreas Behr
Wage rigidity; ECHP; Sticky prices Abstract. We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1995 and 2001. The database used throughout is the User Data Base of the European Community Household Panel (ECHP). The proposed approach is based on the generalized hyperbolic distribution, which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe. [source]

Reasons for Wage Rigidity in Germany

LABOUR, Issue 2 2006
Wolfgang Franz
Based on a survey of 801 firms in Germany and an econometric analysis, we find strong support for explanations based on the effects of labour union contracts and efficiency wages that differ between skill groups. Survey respondents indicate that labour union contracts and implicit contracts are important reasons for wage rigidity for the (less) skilled. Specific human capital and negative signals for new hires are causes of the stickiness of wages for the highly skilled. Compared with US evidence, German firms seem to attach more importance to labour union contracts and specific human capital. [source]

Wage Rigidity: Measurement, Causes and Consequences,

THE ECONOMIC JOURNAL, Issue 524 2007
Lorenz Goette
Wage rigidity , the observation that wages cannot be adjusted downwards , has important implications for labour markets and macroeconomic performance. Empirical evidence on the extent, causes and consequences of wage rigidity on the individual level is relatively scant, however. This Feature presents articles that apply a new methodology to estimate the incidence and extent of nominal and real wage rigidity among the employed in three major European countries (Germany, Italy and Great Britain). The results document the pervasiveness of nominal and, particularly, real wage rigidity in different institutional and economic environments, and a recent decline in real wage rigidity. [source]

The Employment Effects of Severance Payments with Wage Rigidities,

THE ECONOMIC JOURNAL, Issue 506 2005
Pietro Garibaldi
Firing costs have two separate dimensions: a transfer from the firm to the laid-off worker and a tax paid outside the firm-worker pair. To avoid the ,bonding critique' most of the existing literature implicitly assumes that, in the presence of wage rigidity, transfers have the same real effects as taxes. This paper shows that this presumption is in general misplaced, especially so when the degree of wage rigidity is endogenous. The predictions of our theory find empirical support in a panel data-set of OECD countries. [source]

Wage-fixing Behaviour of Managers in Australia

BRITISH JOURNAL OF INDUSTRIAL RELATIONS, Issue 2 2002
Judith Rich
Researchers have conducted surveys of firms in an attempt to test various theories of wage rigidity. The survey of Australian firms reported in this paper found strong support for the view that hiring and training costs are important reasons why employers do not reduce wages, consistent with the surveys of Blinder and Choi (1990), Bewley (1995, 1999) and Kaufman (1984). All the surveys find pervasive support for the notion of fairness as an explanation for wage rigidity. Qualified support was found for the idea that fear of unemployment motivates worker effort. [source]