We study nominal wage rigidity in the Netherlands using administrative data, which has three key features: (1) high-frequency (monthly), (2) high-quality (administrative records), and (3) high coverage (the universe of workers and the universe of firms). We find wage rigidity patterns in the data that are similar to wage behavior documented for other European countries. In particular we find that the hazard function has two spikes, one at 12 months and another one at 24 months and wage changes have time and state dependency components. As a novel and important piece of evidence we also uncover substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract. In particular, contracts featuring flexible hours, such as on-call contracts, exhibit a higher probability of a change in the contract wage compared to fixedhour contracts. Once we split the sample based on contract characteristics, we also find that the response of wage changes to the time and state component is heterogeneous across different type of contracts -with relatively more downward adjustments in flexible-hour contract wages in response to aggregate unemployment.

In this paper we estimate a New-Keynesian dynamic stochastic general equilibrium (NK DSGE) model with heterogeneity in price and wage setting behavior. In a recent study, Coibion and Gorodnichenko develop a DSGE model, in which firms follow four different types of price setting schemes: sticky prices, sticky information, rule-of-thumb, or flexible prices. We enrich Coibion and Gorodnichenko framework by incorporating heterogeneity in nominal wage setting behavior among households. We solve this DSGE model and estimate it using Bayesian techniques for the US economy from 1955 to 2008. The estimation results show the relevance of heterogeneity in wage setting among households. More importantly, we identify qualitative and quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and wage inflation, which a standard NK model with only Calvo-type wage rigidity fails to achieve. We also show that modeling wage-rigidity heterogeneity—as opposed to standard Calvo wages—amplifies the macroeconomic output fluctuations resulting from a technology shock while it mitigates the output fluctuations following a monetary tightening.