Downward Nominal Wage Rigidities Bend the Phillips Curve

Daly, Mary C.; Hobijn, Bart

doi:10.24148/wp2013-08

Cited by 92 publications

(120 citation statements)

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“…Daly and Hobijn (2013); Schmitt-Grohé and Uribe (2011); Kaur (2014); Akerlof et al (1996); Hall (2005); Elsby (2009)). These models are usually motivated by an exogenous fairness norm, and assumptions about the function relating wages to worker effort.…”

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confidence: 99%

Asymmetric Inflation Expectations, Downward Rigidity of Wages, and Asymmetric Business Cycles

Baqaee

2014

SSRN Journal

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Household expectations of the inflation rate are much more sensitive to inflation than to disinflation. To the extent that workers have bargaining power in wage determination, this asymmetry in their beliefs can make wages respond quickly to inflationary forces but sluggishly to deflationary ones. I microfound asymmetric household expectations using ambiguity-aversion: households, who do not know the quality of their information, overweight inflationary news since it reduces their purchasing power, and underweight deflationary news since it increases their purchasing power. I embed asymmetric beliefs into a general equilibrium model and show that, in such a model, monetary policy has asymmetric effects on employment, output, and wage inflation in ways consistent with the data. Although wages are downwardly rigid in this environment, monetary policy need not have a bias towards using inflation to grease the wheels of the labor market.

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Asymmetric Inflation Expectations, Downward Rigidity of Wages, and Asymmetric Business Cycles

Baqaee

2014

SSRN Journal

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“…For others, it depends on downward nominal wage rigidities (e.g. Daly and Hobijn 2014), which in Europe are mainly determined by institutional factors (typically wage bargaining institutions; see Izquierdo et al 2017). In the euro area, the empirical evidence is rather mixed.…”

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Has the wage Phillips curve changed in the euro area?

Bulligan

Viviano

2017

IZA J Labor Policy

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Increasing evidence shows that in the aftermath of the global financial crisis, in the euro area, the relationship between price inflation and economic slack became stronger. Instead, there is no clear evidence of a strong(er) relationship between wage inflation and unemployment. In this paper, we estimate a Phillips curve with time-varying coefficients separately for Italy, Spain, Germany and France and we find that, with the exception of Germany, after the global financial crisis, the sensitivity of hourly wage changes to labour market slack increased. Second, by the use of administrative microdata, available only for Italy, we relate daily wage changes to the local unemployment rate. The results confirm the steepening of the Phillips curve after 2008, also when controlling for composition effects.

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“…have been cited as a reason for the limited cyclical responsiveness of wages (Card & Hyslop, 1997;Lebow et al, 2003;Dickens et al, 2007;Barattieri et al, 2014;Daly & Hobijn, 2014). See Pissarides (2009) and Kudlyak (2010) for two useful overviews.…”

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The Intensive and Extensive Margins of Real Wage Adjustment

Daly¹,

Hobijn²

2016

ERWP

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Using 35 years of data from the Current Population Survey we decompose fluctuations in real median weekly earnings growth into the part driven by movements in the intensive margin-wage growth of individuals continuously full-time employed-and movements in the extensive margin-wage differences of those moving into and out of full-time employment. The relative importance of these two margins varies significantly over the business cycle. When labor markets are tight, continuously full-time employed workers drive wage growth. During labor market downturns, the procyclicality of the intensive margin is largely offset by net exits out of full-time employment among workers with lower earnings. This leads aggregate real wages to be largely acyclical. Most of the extensive margin effect works through the part-time employment margin. Notably, the unemployment margin accounts for little of the variation or cyclicality of median weekly earnings growth.JEL classification codes: E24, J3, J6.

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Downward Nominal Wage Rigidities Bend the Phillips Curve

Cited by 92 publications

References 21 publications

Asymmetric Inflation Expectations, Downward Rigidity of Wages, and Asymmetric Business Cycles

Asymmetric Inflation Expectations, Downward Rigidity of Wages, and Asymmetric Business Cycles

Has the wage Phillips curve changed in the euro area?

The Intensive and Extensive Margins of Real Wage Adjustment

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