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How do wage setting institutions affect wage rigidity? Evidence from French micro data

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  • Gautier, Erwan
  • Roux, Sébastien
  • Suarez Castillo, Milena

Abstract

We document new empirical findings on the effects of wage setting institutions on wage rigidity using quarterly micro wage data matched with sectoral minimum wages. We first estimate a micro empirical model of wage rigidity that takes into account minimum wage dynamics. We then use a simulation method to investigate the implications of lumpy micro wage adjustment for aggregate wages. Both national and sectoral minimum wages have a large effect on the timing and on the size of wage adjustments. Minimum wage setting institutions contribute to increasing the time it takes to fully absorb a shock to wages by one year, although the resulting wage changes are significantly higher. Minimum wages contribute to amplifying, by a factor of 1.7, the response of wages to past inflation. The elasticities of wages with respect to past inflation, the national minimum wage and sectoral minimum wages are 0.42, 0.17 and 0.16 respectively. Finally, there are significant spillover effects of the national minimum wage on higher wages passing through from sectoral minimum wages.

Suggested Citation

  • Gautier, Erwan & Roux, Sébastien & Suarez Castillo, Milena, 2022. "How do wage setting institutions affect wage rigidity? Evidence from French micro data," Labour Economics, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:labeco:v:78:y:2022:i:c:s0927537122001221
    DOI: 10.1016/j.labeco.2022.102232
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    2. Garbinti, Bertrand & García-Peñalosa, Cecilia & Pecheu, Vladimir & Savignac, Frederique, 2023. "Trends and Inequality in Lifetime Earnings in France," CEPR Discussion Papers 18472, C.E.P.R. Discussion Papers.
    3. Khoury, Laura, 2023. "Unemployment benefits and redundancies: Incidence and timing effects," Journal of Public Economics, Elsevier, vol. 226(C).
    4. Effrosnyi Adamopoulou & Luis Diez-Catalan & Ernesto Villanueva, "undated". "Staggered Contracts and Unemployment During Recessions," CRC TR 224 Discussion Paper Series crctr224_2022_379, University of Bonn and University of Mannheim, Germany.
    5. Paul Hubert & Frédérique Savignac, 2023. "Monetary Policy and Labor Income Inequality: the Role of Extensive and Intensive Margins," Working papers 913, Banque de France.
    6. Martins, Pedro S., 2022. "The wage effects of employers' associations: A case study of the private schools sector," GLO Discussion Paper Series 1163, Global Labor Organization (GLO).
    7. Gόrnicka, Lucyna & Koester, Gerrit & Radowski, Daniel & Gautier, Erwan & Peinado, Mario Izquierdo & Stiglbauer, Alfred & Wittekopf, David & Puente, Sergio & Duarte, Claudia & Martins, Fernando & Basso, 2024. "A forward-looking tracker of negotiated wages in the euro area," Occasional Paper Series 338, European Central Bank.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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