Working Paper: CEPR ID: DP4271
Authors: Thomas Bauer; Holger Bonin; Uwe Sunde
Abstract: The Paper examines real and nominal wage rigidities. We estimate a switching regime model, in which the observed distribution of individual wage changes, computed from West German register data for 1976-97, is generated by simultaneous processes of real, nominal or no wage rigidity, and measurement error. The fraction of workers facing wage increases that are due to nominal, but mostly real, wage rigidity is substantial. The extent of real rigidity rises with inflation, whereas the opposite holds for nominal rigidity. Overall, the incidence of wage rigidity, which accelerates unemployment growth, is most likely minimized in an environment with moderate inflation.
Keywords: Collective Bargaining; Downward Wage Rigidity; Real Effects of Inflation; Switching Regime Model; West Germany
JEL Codes: E52; J31; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation (E31) | real wage rigidity (J31) |
| inflation (E31) | nominal wage rigidity (J31) |
| real wage rigidity (J31) | higher unemployment (J64) |
| real wage rigidity (J31) | average wage growth (J31) |
| nominal wage rigidity (J31) | average wage growth (J31) |
| real wage rigidity (J31) | wage adjustments (J31) |