A BEJM Advances article.

Abstract

Recent microeconomic studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries, but critics argue that the effect might be undone by compositional changes and flexibility in wages of new entrants. Using data for hourly nominal wages at industry level, we explore the existence of DNWR on industry wages in 19 OECD countries, over the period 1973-1999. We propose a novel method to detect DNWR. We reject the hypothesis of no DNWR in the overall sample. The fraction of wage cuts prevented due to DNWR has fallen over time, from 61 percent in the 1970s to 16 percent in the late 1990s, but the number of industries affected by DNWR has increased. DNWR is more prevalent when unemployment is low and union density is high. Strict employment protection legislation also leads to fewer wage cuts.

Submitted: September 28, 2007 · Accepted: March 23, 2008 · Published: April 11, 2008

Recommended Citation

Holden, Steinar and Wulfsberg, Fredrik (2008) "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics: Vol. 8 : Iss. 1 (Advances), Article 15.
DOI: 10.2202/1935-1690.1651
Available at: http://www.bepress.com/bejm/vol8/iss1/art15