Robustness and real consequences of nominal wage rigidity

Details

Serval ID
serval:BIB_D3205D490718
Type
Article: article from journal or magazin.
Collection
Publications
Title
Robustness and real consequences of nominal wage rigidity
Journal
Journal of Monetary Economics
Author(s)
Fehr E., Goette L.
ISSN
0304-3932
Publication state
Published
Issued date
2005
Peer-reviewed
Oui
Volume
52
Number
4
Pages
779 - 804
Language
english
Abstract
Nominal wage rigidity has been shown to exist in periods of high inflation, while reduction in nominal pay has been hypothesized to occur in times of low inflation. Nominal wage rigidity would therefore become irrelevant because there is little need to cut nominal pay under high inflation, while the necessary cuts would occur under low inflation. We test this hypothesis by examining Swiss data in the 1990s, where wage inflation was low. Nominal wage rigidity proves robust in a low inflation environment, constituting a considerable obstacle to real wage adjustments. Real wages would indeed respond to unemployment without downward nominal rigidity. Moreover, wage sweep-ups caused by nominal rigidity correlate strongly to unemployment, suggesting downward nominal wage rigidity fuels unemployment.
Keywords
Wages, Nominal rigidity, Inflation, Unemployment
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Create date
10/08/2009 14:21
Last modification date
20/08/2019 16:53
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