Nominal Wage Rigidity and the Rate of Inflation

Dados Bibliográficos

ID9710975
AutoresStephen Nickell (Monetary Policy Committee, Bank of England and London School of Economics), Glenda Quintini (OECD, Paris)
Ano2003
Volume113
Fascículo490
Páginas762-781
Data de publicação2003-10-01
Peer ReviewedSim
Open AccessSim
TipoARTICLE
PeriódicoThe Economic Journal (JOURNAL)
Identificadores do periódicoISSN: 0013-0133 • E-ISSN: 1468-0297
EditoraOxford University Press (OUP) (PUBLISHER)
DOI10.1111/1468-0297.t01-1-00161
OpenAlexW2168188888
IdiomaEN
Citações recebidas14
Referências citadas8

Using the accurate and extensive data available in the UK New Earnings Survey, this paper investigates the extent to which nominal wages are downwardly rigid and whether such rigidity interferes with necessary real wage adjustments when inflation is low. Despite the substantial numbers of individuals whose nominal wages fall from one year to the next, we find that there is evidence of some rigidity at zero nominal wage change. While the effect is statistically significant, the macroeconomic impact of the distortion is very modest. It is commonplace for economists to assert that nominal wages are downwardly rigid. However, a casual glance at the work of Smith (2000) for the UK or McLaughlin (1994) for the US immediately appears to indicate that substantial numbers of individuals experience falls in nominal wages from one year to the next. So is the downward rigidity of nominal wages simply a myth? Not necessarily. It is possible that these observed falls in nominal wages are due to measurement error in the data. Furthermore even if many individuals have negative nominal wage rises, some people may still face a barrier at zero and this type of nominal rigidity could still generate significant real effects

Earnings · Econometrics · Economics · Inflation (cosmology · Labour economics · Monetary economics · Monetary policy · Nominal interest rate · Real interest rate · Rigidity (electromagnetism · Wage · Economic Theory and Policy · Housing Market and Economics · Monetary Policy and Economic Impact