Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 07/2007: Are real wages rigid downwards?

Steinar Holden () and Fredrik Wulfsberg ()
Additional contact information
Steinar Holden: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Fredrik Wulfsberg: Norges Bank, Postal: P.O Box 1179 Sentrum, N-0107 Oslo, Norway

Abstract: This paper explores the existence of downward real wage rigidity (drwr) in 19 oecd countries, over the period 1973–1999, using data for hourly nominal earnings at industry level. Based on a nonparametric statistical method, which allows for country and year specific variation in both the median and the dispersion of industry wage changes, we find evidence of some downward rigidity of real wages in OECD countries overall, as well as for regions and time periods. There is some evidence that real wage cuts are less prevalent under strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal than for downward real wage rigidity.

Keywords: Downward real wage rigidity; OECD; employment protection legislation; wage setting

JEL-codes: C14; C15; E31; J30; J50

42 pages, March 28, 2007

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