Downward Wage Rigidity in Italy: Micro‐Based Measures and Implications

Abstract

Using the 1985-99 "WHIP" data, we find a sizable amount of downward wage rigidity in Italy, with a prevalence of real over nominal rigidity. The results hold when real rigidity is identified either with reference to collective bargaining dispositions or to price inflation. Consistently with the labour market reforms of the early 1990s, downward rigidities have become less important over time, with the reduction in real rigidities more than offsetting the rise in nominal rigidities. We also find that downward wage rigidities are positively related to labour reallocation and local unemployment rates, hinting at the macroeconomic relevance of our estimates. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Wage rigidities and business cycle fluctuations: a linked employer-employee analysis

“…In line with the existing literature on wage rigidities (for Italy Devicienti et al 2007), we restrict the analysis to the sample of "super-stayers" in order to analyse wage changes net of composition effects: we keep only full-time workers aged 20-64, who have worked for two consecutive years (for at least 52 weeks and at least 200 days per year), in the same firm, with the same contract 4 Excluding workers under short time work benefits is important when analysing the cyclicality of wage changes for stayers as these schemes are strongly anti-cyclical. Some other forms of measurement error in daily wage (level and/or change) remains inevitable, for instance, because of episodes of maternity or sick leave or because of adjustments in overtime hours.…”

“…The assumption that the distribution of the notional wage changes is symmetric is in line with a large strand of the literature that adopts more parametric approaches (Dickens et al 2007;Goette et al 2007;Devicienti et al 2007;Card and Hyslop 1997). Our methodology, adopted also by Verdugo (2016) to study wage cyclicality in Europe, differs because it does not make any parametric assumption on the mean and variance of the notional wage changes distribution.…”

“…Moreover, in this paper, we decided not to distinguish between nominal and real wage rigidities because they are usually identified by observing spikes either around 0 or around the inflation rate. However, since we are considering years of very low inflation, it is difficult to separately identify the two types of rigidities (see Devicienti et al 2007).…”

“…Moreover, it helps policymakers decide which policy interventions to prioritize during downturns. The relatively flat evolution of aggregate wages is usually explained through (i) the presence of wage rigidities, that is a well-known feature of many labour markets (see for example, Kahn 1997; Knoppik and Beissinger 2009;Devicienti et al 2007;Dickens et al 2007;and Holden and Wulfsberg 2008), and through (ii) cyclical changes in the composition of the workforce (Lemieux 2006), since lower-paid workers are usually more severely affected during recessions. Some recent literature (D' Amuri 2014; Adamopoulou et al 2016;Daly et al 2011;Verdugo 2016) indeed finds that composition effects have driven up aggregate wages, particularly during the recent recession.…”

Wage Rigidity and Disinflation in Emerging Countries

“…This methodology has been extended by Goette, Bauer, and Sunde (2007) to consider DRWR, or the resistance of nominal wages to fall below an estimated positive threshold, and has been applied to case studies in the United Kingdom (Barwell and Schweitzer 2007), Germany , and Italy (Devicienti, Maida, and Sestito 2007). In what follows, we present a brief description of the main elements of this model.…”