The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach

National Bank of Belgium Working Paper No. 191

28 Pages Posted: 22 Sep 2010 Last revised: 27 Sep 2010

See all articles by Julian Messina

Julian Messina

World Bank

Philip Du Caju

National Bank of Belgium

Claudia Duarte

affiliation not provided to SSRN

Niels Lynggaard Hansen

National Bank of Denmark

Mario Izquierdo

Banco de España

Multiple version iconThere are 3 versions of this paper

Date Written: June 30, 2010

Abstract

This paper presents estimates based on individual data on downward nominal and real wage rigidities for thirteen sectors in Belgium, Denmark, Spain and Portugal. Our methodology follows the approach recently developed for the International Wage Flexibility Project, whereby resistance to nominal and real wage cuts is measured through departures of observed individual wage-change histograms from an estimated counterfactual wage-change distribution that would have prevailed in the absence of any rigidity. We evaluate the role of worker and firm characteristics in shaping wage rigidities. We also confront our estimates of wage rigidities with structural features of the labour markets studied, such as the wage bargaining level, variable pay policy and the degree of product market competition. We find that the use of firm-level collective agreements in countries with rather centralised wage formation reduces the degree of real wage rigidity. This finding suggests that some degree of decentralisation within centralised countries allows firms to adjust wages downwards, when business conditions take a turn for the worse.

Keywords: wage rigidity, wage-bargaining institutions

JEL Classification: J31

Suggested Citation

Messina, Julián and Du Caju, Philip and Duarte, Claudia and Hansen, Niels Lynggaard and Izquierdo, Mario, The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach (June 30, 2010). National Bank of Belgium Working Paper No. 191, Available at SSRN: https://ssrn.com/abstract=1680741

Julián Messina (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Philip Du Caju

National Bank of Belgium ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Claudia Duarte

affiliation not provided to SSRN ( email )

Niels Lynggaard Hansen

National Bank of Denmark ( email )

Havnegade 5
DK-1093 Copenhagen K
Denmark

Mario Izquierdo

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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