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How Wages Change: Micro Evidence from the International Wage Flexibility Project

Author

Listed:
  • William Dickens

    (The Brookings Institution)

  • Lorenz Goette

    (University of Zurich)

  • Erica L. Groshen

    (Federal Reserve Bank of New York, and IZA)

  • Steinar Holden

    (University of Oslo, Center for Economic Studies-Information and Forschung Institute (CESifo))

  • Julian Messina

    (CSEF, University of Salerno, and European Central Bank)

  • Mark Schweitzer

    (Federal Reserve Bank of Cleveland)

  • Jarkko Turunen

    (European Central Bank)

  • Melanie Ward

    (European Central Bank, and IZA)

Abstract
How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals’ earnings in 31 different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries.

Suggested Citation

  • William Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark Schweitzer & Jarkko Turunen & Melanie Ward, 2007. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," CSEF Working Papers 171, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:171
    as

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    File URL: http://www.csef.it/WP/wp171.pdf
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    References listed on IDEAS

    as
    1. Holden Steinar & Wulfsberg Fredrik, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-50, April.
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    10. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie Ward, 2006. "The interaction of labor markets and inflation: analysis of micro data from the International Wage Flexibility Project," Proceedings, Federal Reserve Bank of San Francisco.
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    More about this item

    Keywords

    Wage setting; Wage change distributions; Downward nominal wage rigidity; Downward real wage rigidity;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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