Wage rigidity and job creation

a b s t r a c tDespite having had the same currency for many years, EMU countries still have quite different inflation dynamics. In this paper we explore one possible reason: country specific labor market institutions, giving rise to different inflation volatilities. When unemployment insurance schemes differ, as they do in EMU, reservation wages react differently in each country to area-wide shocks. This implies that real marginal costs and inflation also react differently. We report evidence for EMU countries supporting the existence of a cross-country link over the cycle between labor market structures on the one side and real wages and inflation on the other. We then build a DSGE model that replicates the data evidence. The inflation volatility differentials produced by asymmetric labor markets generate welfare losses at the currency area level of approximately 0.3% of steady state consumption.

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“…Results are not reported for brevity but are available on request. 27 Haefke and Sonntag (2008) find the same type results (see line 25 of …”

Section: Open Economy Spillovers and The Degree Of Opennesssupporting

confidence: 61%

Labor market institutions and inflation volatility in the euro area

Campolmi

Faia

2011

Journal of Economic Dynamics and Control

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“…Haefke et al. () find that wages of newly hired workers are more responsive to changes in labour productivity than those of job stayers. Daly and Hobijn () and Robertson () suggest that DNWR is present for job changers too, although it is lower than for job stayers.…”

Section: Datamentioning

confidence: 99%

Downward nominal wage rigidity in Canada: Evidence from micro‐level data

Brouillette

Kostyshyna

Kyui

2018

Canadian J of Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in www.econstor.euBank of Canada staff working papers provide a forum for staff to publish work-in-progress research independently from the Bank's Governing Council. This research may support or challenge prevailing policy orthodoxy. Therefore, the views expressed in this paper are solely those of the authors and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank. The views expressed in this paper are those of the authors and not necessarily those of the Bank of Canada.ii AbstractWe assess the importance of downward nominal wage rigidity (DNWR) in Canada using both firm-and worker-level microdata. In particular, we analyze employer-level administrative data from the Major Wage Settlements (MWS) and household-based survey data from the Survey of Labour Income Dynamics (SLID). MWS data cover large unionized firms in Canada, while SLID is a rich rotating panel representative of the employed population in Canada. Combining both sources of information allows for a more extensive analysis of DNWR in the Canadian labour market. The results suggest that, on average, the effects of DNWR added about 0.2 to 0.4 percentage points to wage growth between 1994 and 2011; as well, the estimated effects increased in the years following the Great Recession in 2008-09. That includes a higher proportion of workers affected by DNWR (which rose from 16 to 32 per cent) and a larger impact on average wage growth. DNWR's effects on average wage growth were also much stronger during periods of lower CPI inflation in Canada and are positively related to provincial unemployment rates. Finally, we provide an extensive analysis of the heterogeneity in the effects of DNWR. For example, its impact is more pronounced among smaller firms, lower occupational levels, immigrants and older workers. Overall, population ageing and an increasing proportion of immigrants may continue to increase the effects of DNWR in Canada, while the continuing shift toward service industries, declining unionization rates and the increasing educational attainment of the Canadian population may reduce them. Bank topic(s): Labour markets; Econometric and statistical methods JEL code(s): J3, E24, J30

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“…We decide to adopt it because the relevant wages for the reform are wages of newly hired workers with permanent contracts. Along this line, recent evidence by Haefke et al (2013) and Pissarides (2009) suggests that wages in new jobs display similar variability than the one obtained from a Nash wage equation in the search model. Moreover, 10 We introduce the wasted firing costs component to avoid the 'bonding critique' (Lazear, 1990).…”

Section: A Theoretical Frameworkmentioning

confidence: 69%

Wage effects of non-wage labour costs

Cervini-Plá

Ramos

Silva

2014

European Economic Review

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JEL classification: C23 D31 J31 Keywords:Dismissal costs Payroll tax Evaluation of labour market reforms Difference-in-difference Matching model a b s t r a c tWe study wage effects of two important elements of non-wage labour costs: firing costs and payroll taxes. We exploit a reform that introduced substantial reduction in these two provisions for unemployed workers aged less than 30 and over 45 years who got a permanent job. A matching model with heterogeneous workers predicts positive wage effects of reducing firing costs but ambiguous wage effects of reducing payroll taxes, for both new entrant and incumbent workers. Difference-in-differences estimates and simulation of the model show positive wage effects for both new entrant and incumbent workers. The reduction in firing costs accounts for up to half of the overall wage increase for new entrants but only 10% for incumbents.

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Wage rigidity and job creation

Cited by 158 publications

References 55 publications

Labor market institutions and inflation volatility in the euro area

Labor market institutions and inflation volatility in the euro area

Downward nominal wage rigidity in Canada: Evidence from micro‐level data

Wage effects of non-wage labour costs

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