• Corpus ID: 15111917

The Causes and Consequences of Nominal and Real Wage Rigidity : a Sectoral Approach

@inproceedings{Messina2008TheCA,
  title={The Causes and Consequences of Nominal and Real Wage Rigidity : a Sectoral Approach},
  author={Juli{\'a}n Messina and Cl{\'a}udia Filipa Pires Duarte and Mario Izquierdo and Niels Lyngg{\aa}rd Hansen and Danmarks Nationalbank},
  year={2008}
}

• Julián Messina, C. Duarte, +2 authors Danmarks Nationalbank
• Published 2008
• Economics

This paper presents estimates based on individual data of downward nominal and real wage rigidities for thirteen sectors in Belgium, Denmark, Spain and Portugal in order to examine the causes and consequences of rigid wages. Our methodology follows the approach recently developed for the International Wage Flexibility Project (IWFP), 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 rigidity. We evaluate the role of wage bargaining institutions and worker and firm characteristics in shaping both types of rigidities as well as their consequences for the determination of employment, productivity and the dispersion of wage changes. Preliminary results indicate higher real wage rigidity for prime-age workers and white collars. Real wage rigidity decreases if firms apply firm-level wage agreements, whereas nominal wage rigidity is limited by the use of flexible pay instruments. Nominal and real rigidity have a negative impact on employment, while only nominal rigidity affects labour productivity. These findings can be related to standard labour market theories.