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|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|6502||2009||11 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Monetary Economics, Volume 56, Issue 4, May 2009, Pages 605–615
We explore the existence of downward real wage rigidity (DRWR) at the industry level, based on data from 19 OECD countries for the period 1973–1999. The results show that DRWR compresses the distributions of industry wage changes overall, as well as for specific geographical regions and time periods, but there are not many real wage cuts that are prevented. More important, however, DRWR attenuates larger real wage cuts, thus leading to higher real wages. There is stronger evidence for downward nominal wage rigidity than for DRWR. Real wage cuts are less prevalent in countries with strict employment protection legislation and high union density.
In recent years, real wage rigidity has become a key component of several contributions to the business cycle and monetary policy literature, see e.g. Blanchard and Gali (2007), Hall (2005), Krause and Lubik (2006), and Shimer (2005). However, there is considerable controversy about whether real wages really are rigid. The paper focuses on one specific aspect of sluggish wages, namely to what extent real wages are rigid downwards. If present, downward real wage rigidity (DRWR) is particularly relevant for how the economy functions in a downturn, as DRWR affects how adverse shocks may lead to higher unemployment rather than lower wages. Several recent studies have found evidence for considerable DRWR for job stayers in a number of OECD countries (see Barwell and Schweitzer, 2004, Bauer et al., 2007, Christofides and Li, 2005 and Dickens et al., 2005), as well as in experimental work (Falk and Fehr, 1999) and in surveys of managers and firm owners (Bewley, 1999 and Agell and Lundborg, 2003). While these findings are useful for our understanding of individual wage setting, the effects on aggregate variables remain open. Even if individual wages are rigid in real terms, firms may respond by other means, like changing the composition of the work force. And even if wage rigidity binds in some firms, jobs may be shifted over to other firms with lower or more flexible wages. With annual job turnover rates above 20 percent, as is the case in many OECD countries (see Haltiwanger et al., 2008), and generally higher worker turnover rates, rigid wages for many individual job stayers need not imply the same rigidity of average wages. Consistent with this hypothesis, Farès and Lemieux (2001) find that in Canada most of the real wage adjustments over the business cycle are experienced by new entrants. In contrast to the previous literature, we explore the existence of DRWR at the industry level, based on data from 19 OECD countries for the period 1973–1999, covering in total 449 country-year samples. The key aim is to explore whether the effects of the wage rigidity found in micro-data are entirely offset by compositional and other changes, or whether there remains an effect of individual downward rigidity on aggregate wage data. In our view it is important to distinguish between these two alternatives. If there is no sign of DRWR in industry-level wage data, it seems hard to believe that the individual rigidity has a non-negligible effect on industry output or employment. On the other hand, if there is DRWR in industry-level wage data, rigidity prevails in spite of varying compositional effects. In this case effects on industry output and employment also seem more likely. We outline a simple theoretical model of DRWR, which serves as a framework for organizing the data and to interpret the empirical findings. The empirical analysis is a variant of the wage-change approach initiated by McLaughlin (1994), drawing upon our previous work on downward nominal wage rigidity (Holden and Wulfsberg, 2008). The key idea is to detect possible DRWR by comparing the empirical real wage-change distribution with a constructed counterfactual or notional (as if no rigidity exists) wage-change distribution. The shape of the notional wage-change distribution is constructed on the basis of country-year samples with high real and nominal wage growth, where downward rigidities are less likely to bind. If the empirical number of real wage cuts is significantly smaller than expected from the notional distributions, we conclude that wages are rigid downwards. Robustness checks in Holden and Wulfsberg (2008) indicate that this method has very good properties for detecting the downward wage rigidity that exists in the data. The paper is organized as follows. Section 2 presents the theoretical model, while Section 3 describes data and the empirical approach. Section 4 presents the main results. DRWR is fairly small but statistically significant for the OECD countries, and in particular the extent of large real wage cuts is reduced. In Section 5 we make use of the broad scope of our data across countries and time, and explore whether the variation in DRWR can be explained by economic and institutional variables. The analysis shows that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density. Section 6 concludes and discusses the relevance of our results for modeling wage rigidity in the context of business cycle analysis.
نتیجه گیری انگلیسی
Using industry data for 19 OECD countries between 1973 and 1999, we find evidence of downward real wage rigidity in the core European countries, and in the Anglo group, but not for the southern European countries. The extent of DRWR is small, and in the full sample only 4 out of 100 notional wage cuts are prevented by DRWR. However, there is stronger evidence of downward rigidity at negative real wage changes. Eleven percent of the real wage changes below -2-2 percent growth are prevented by DRWR, and 18 percent of changes below -5-5 percent real wage growth are prevented. The stronger downward rigidity at negative real wage changes is a key finding of our study. It implies that one should not take frequent real wage cuts as indication that real wages are flexible downwards, as the downward resistance can bind also at lower levels. Possible effects on employment and output do not hinge on DRWR being binding at zero, it is sufficient that real wages are pushed up. The stronger DRWR at negative growth rates is consistent with our theoretical model, where workers’ resistance against wage cuts not only prevents smaller wage cuts, but also reduces the size of larger ones. Compositional changes in the work force, where e.g. older high-wage workers are replaced by younger low-wage workers, may also contribute to a limited reduction in average real wages, even if individual workers avoid real wage cuts. Downward nominal rigidity is in general much more significant and of greater magnitude than downward rigidity of real wages. The difference between DNWR and DRWR was, however, smaller in the late 1990s than in earlier periods, reflecting a reduction in the extent of DNWR. This suggests that nominal wages have become more flexible downwards, in line with the reduction in inflation, but there has not been the same increase in the flexibility of real wages. In periods of low inflation, DNWR will also involve DRWR, and it is indeed difficult to distinguish between the two types of rigidity. However, as DRWR also binds in high inflation periods, it seems clear that DRWR is an independent phenomenon that is not only caused by DNWR combined with a low inflation rate. In contrast to most previous studies of DRWR, which consider the wages of job stayers, we use data for average wages at the industry level. Thus, if DRWR for job stayers is circumvented by firms that give lower wage increases to other workers, or hire new workers at lower wages, there will be no DRWR in our data. Nor will our data capture downward wage rigidity in some firms, if many jobs are moved to other firms with lower wages in the same industry. However, in these cases it is questionable whether the wage rigidity at the worker- or the firm-level will have any impact at the aggregate level. In contrast, if the DRWR also prevails in industry wages, an effect on aggregate output and employment seems more likely. Our finding of DRWR is based on a univariate framework, which only includes data for real wage growth. The univariate framework has the advantage of needing no assumptions on explanatory variables and functional forms. Thus, when we detect DRWR, we can be fairly confident that this finding is indeed a feature inherent in the data. What is the effect of wage rigidity on employment and output? This is a matter of considerable controversy within recent macro-labor literature. Using a basic search model, Shimer (2005) argues that real wage rigidity is crucial for explaining the evolution of vacancies and unemployment over the business cycle. However, as pointed out by among others Shimer (2004) and Pissarides (2009), wage rigidity of job stayers is not important in the search model, it is the wages of new hires that matter. Furthermore, Pissarides (2009) argues that the evidence indicates that wages of new hires are flexible, and concludes that wage rigidity is not important for the cyclical movement of unemployment and vacancies. This view is, however, opposed by Gertler and Trigari (2009) who show that when controlling for compositional changes in job quality, the wages of new hires is no longer more flexible than that of job stayers. Furthermore, in many OECD countries, most workers have their wage set in a collective agreement, and these agreements typically also apply for new hires. Consistent with this, Card (1990) finds that wage rigidity in Canadian union contracts affect firms’ employment decisions. There is fairly strong evidence that the variation in unemployment rates across time and OECD countries is related to institutional labor market variables—like unemployment benefits, union density, and the degree of coordinated wage setting—which are likely to reflect differences in wage-setting behavior (see for example Nickell et al., 2003). Within this framework, one would expect increased wage pressure due to binding DRWR to induce higher unemployment, in line with the early explanations of the rise in European unemployment in the 1970s (see Bruno and Sachs, 1985; Grubb et al., 1983). Testing this conjecture is an important task for future research.