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The Incidence of Nominal and Real Wage Rigidities in Great Britain: 1978-98

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  • RichardD. Barwell
  • MarkE. Schweitzer

Abstract

This article analyses the extent of rigidities in wage setting in Great Britain over the 1980s and 1990s. Our estimation strategy follows the generalised Altonji and Devereux (2000) model discussed in the introduction to this Feature, but it includes modifications to include some special features of the British data. Our estimates reveal that real rigidities in wage setting are more prevalent than nominal rigidities in Great Britain, although the incidence of these real wage rigidities has fallen gradually over time. If firms cannot cut real wages in response to negative demand shocks they may resort to laying off workers. Our results support this micro-foundation of the wage-unemployment Phillips curve: workers who are more likely to be protected from wage cuts are also more likely to lose their jobs. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • RichardD. Barwell & MarkE. Schweitzer, 2007. "The Incidence of Nominal and Real Wage Rigidities in Great Britain: 1978-98," Economic Journal, Royal Economic Society, vol. 117(524), pages 553-569, November.
    • Handle: RePEc:ecj:econjl:v:117:y:2007:i:524:p:f553-f569
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    Cited by:

    1. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.
    2. Aedín Doris & Donal O’Neill & Olive Sweetman, 2015. "Wage flexibility and the great recession: the response of the Irish labour market," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.
    3. Juli?n Messina & Anna Sanz-de-Galdeano, 2014. "Wage Rigidity and Disinflation in Emerging Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(1), pages 102-133, January.
    4. Marotzke Petra & Anderton Robert & Bairrao Ana & Berson Clémence & Tóth Peter, 2020. "Asymmetric wage adjustment and employment in European firms," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-25, June.
    5. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., 2009. "Are wages rigid in Colombia?: Empirical evidence based on a sample of wages at the firm level," Borradores de Economia 571i, Banco de la Republica de Colombia.
    6. Steven J. Davis & Pawel M. Krolikowski, 2023. "Sticky Wages on the Layoff Margin," NBER Working Papers 31528, National Bureau of Economic Research, Inc.
    7. Anja Deelen & Wouter Verbeek, 2015. "Measuring Downward Nominal and Real Wage Rigidity - Why Methods Matter," CPB Discussion Paper 315, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Hyuk Jae Rhee & Jeongseok Song, 2017. "Real Wage Flexibility, Economic Fluctuations, and Exchange Rate Regimes," Open Economies Review, Springer, vol. 28(4), pages 633-659, September.
    9. Anete Pajuste & Hernán Ruffo, 2017. "Wage rigidity and workers’ flows during recessions," SSE Riga/BICEPS Research Papers 4, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    10. Juarez, Laura & de la Cabada, Daniel Casarin, 2018. "Downward wage rigidities in the Mexican labor market: 1996–2011," LSE Research Online Documents on Economics 123358, London School of Economics and Political Science, LSE Library.
    11. 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.
    12. Fella Giulio, 2012. "Matching, Wage Rigidities and Efficient Severance Pay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-35, December.

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