Downward Nominal and Real Wage Rigidity : Survey Evidence from European Firms

It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. The authors analyse which firm-level and institutional factors are associated with wage rigidity. The results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). The analysis also finds that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations.

Bibliographic Details

Main Authors:	Babecky, Jan, Du Caju, Philip, Kosma, Theodora, Lawless, Martina, Messina, Julian, Room, Tairi
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2009-12
Subjects:	ADVERSE SELECTION, ASYMMETRIC INFORMATION, BARGAINING AGREEMENT, BARGAINING POWER, BUSINESS CYCLE, CENTRAL BANKS, COLLECTIVE AGREEMENTS, COLLECTIVE BARGAINING, COMPETITIVE PRESSURE, CONTRACTUAL WAGES, ECONOMIC SHOCKS, ECONOMICS, EFFICIENCY WAGE THEORIES, EFFICIENCY WAGE THEORY, EMPIRICAL STUDIES, EMPLOYMENT, EMPLOYMENT OUTLOOK, EMPLOYMENT PROTECTION LEGISLATION, ENVIRONMENTS, EQUILIBRIUM UNEMPLOYMENT, FAIR, FIRING COSTS, FIRM LEVEL, FIRM SIZE, FIRM SURVEY, GAME THEORY, HOUSEHOLD SURVEY, HOUSEHOLD SURVEYS, HUMAN CAPITAL, IMPLICIT CONTRACTS, INCOME LEVEL, INDEXATION, INFLATION, INSURANCE, JOB LOSS, JOBS, LABOR CONTRACTS, LABOR ECONOMICS, LABOR MARKET, LABOR MARKETS, LABOR TURNOVER, LABOUR, LABOUR COST, LABOUR COSTS, LABOUR MARKET, LABOUR MARKET CHARACTERISTICS, LABOUR MARKET INSTITUTIONS, LABOUR MARKETS, LABOUR REGULATIONS, LABOUR UNIONS, LABOUR-INTENSIVE TECHNOLOGIES, LAYOFFS, MARKET COMPETITION, MONETARY POLICY, MOTIVATION, NOMINAL WAGES, OCCUPATION, PERMANENT WORKERS, POLITICAL ECONOMY, PRESENT STUDY, PRICE CHANGE, PRICE COMPETITION, PRICE LEVEL, PRICE SETTING, PRICE STABILITY, PRIVATE SECTOR, PRODUCT MARKET, PRODUCT MARKET COMPETITION, PRODUCTION TECHNOLOGY, PRODUCTIVITY, REAL INCOME, REAL WAGE, REAL WAGES, RENTS, REPLACEMENT COSTS, RETIREMENT, RIGID WAGES, SKILL GROUPS, SKILLED WORKERS, SMALL MANUFACTURING, TEMPORARY WORKERS, THEORETICAL MODELS, TOTAL WAGE, TOTAL WAGES, TRADE UNIONS, UNEMPLOYMENT, UNEMPLOYMENT INSURANCE, UNION DENSITY, UNION MEMBERSHIP, UNION MEMBERSHIP RATES, WAGE ADJUSTMENT, WAGE BARGAINING, WAGE BILL, WAGE DETERMINATION, WAGE FLEXIBILITY, WAGE INCREASES, WAGE LEVEL, WAGE LEVELS, WAGE NEGOTIATION, WAGE NEGOTIATIONS, WAGE RIGIDITIES, WAGE RIGIDITY, WAGES, WORKER,
Online Access:	http://documents.worldbank.org/curated/en/2009/12/11561636/downward-nominal-real-wage-rigidity-survey-evidence-european-firms http://hdl.handle.net/10986/19955
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