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

Author

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  • Behr Andreas

    (University of Münster,Münster, Germany)

  • Pötter Ulrich

    (University of Bochum,Bochum, Germany)

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

  • Behr Andreas & Pötter Ulrich, 2010. "Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results," German Economic Review, De Gruyter, vol. 11(2), pages 169-187, May.
    • Handle: RePEc:bpj:germec:v:11:y:2010:i:2:p:169-187
    DOI: 10.1111/j.1468-0475.2009.00472.x
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    Cited by:

    1. Gabriel Pino & Ariel Soto, 2014. "Analysis of wage flexibility across the Euro Area: evidence from the process of convergence of the labour income share ratio," Applied Economics, Taylor & Francis Journals, vol. 46(29), pages 3572-3580, October.

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