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Downward nominal and real wage rigidity: Survey evidence from European firms. National Bank of Belgium Working Paper No. 182, November 2009

Babecky, Jan and Du Caju, Philip and Kosma, Theodora and Lawless, Martina and Messina, Julian and Room, Tairi (2009) Downward nominal and real wage rigidity: Survey evidence from European firms. National Bank of Belgium Working Paper No. 182, November 2009. [Working Paper]

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    Abstract

    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. We analyse which firm-level and institutional factors are associated with wage rigidity. Our 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). We also find 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.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > employment/labour market > labour/labor
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 20 Jan 2010
    Page Range: p. 60
    Last Modified: 15 Feb 2011 18:20
    URI: http://aei.pitt.edu/id/eprint/12373

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