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Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results

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  • Andreas Behr
  • Ulrich Pötter

Abstract

. We suggest a new parametric approach to estimate the extent of downward nominal wage rigidity in ten European countries between 1995 and 2001. The database used throughout is the User Data Base of the European Community Household Panel (ECHP). The proposed approach is based on the generalized hyperbolic distribution, which allows to model wage change distributions characterized by thick tales, skewness and leptokurtosis. Significant downward nominal wage rigidity is found in all countries under analysis, but the extent varies considerably across countries. Yearly estimates reveal increasing rigidity in Italy, Greece and Portugal, while rigidity is declining in Denmark and Belgium. The results imply that the costs of price stability differ substantially across Europe.

Suggested Citation

  • Andreas Behr & Ulrich Pötter, 2010. "Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 169-187, May.
    • Handle: RePEc:bla:germec:v:11:y:2010:i:2:p:169-187
    DOI: 10.1111/j.1468-0475.2009.00470.x
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    References listed on IDEAS

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    Cited by:

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    3. Anja Deelen & Wouter Verbeek, 2015. "Measuring Downward Nominal and Real Wage Rigidity - Why Methods Matter," CPB Discussion Paper 315.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Bahal, Girish & Shrivastava, Anand, 2021. "Supply variabilities in public workfares," Journal of Development Economics, Elsevier, vol. 150(C).

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