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Properties of the Histogram Location Approach and the Extent and Change of Downward Nominal Wage Rigidity in the EU

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  • Andreas Behr

Abstract

The histogram location approach has been proposed by Kahn (1997) to estimate the fraction of wage cuts prevented by downward nominal wage rigidity. In this paper, we analyze the validity of the approach by means of a simulation study which yielded evidence of unbiasedness but also of potential underestimation of rigidity parameter uncertainty and therefore of potential anticonservative inference. We apply the histogram location approach to estimate the extent of downward nominal wage rigidity across the EU for 1995-2001. Our data base is the User Data Base (UDB) of the European Community Household Panel (ECHP). The results show wide variation in the fraction of wage cuts prevented by nominal wage rigidity across the EU. The lowest rigidity parameters are found for the UK, Spain and Ireland, the largest for Portugal and Italy. Analyzing the change of rigidity between sub periods 1995-1997 and 1999-2001 even shows an widening of the differences in nominal wage rigidity. Due to the finding of large differences across the EU, the results imply that the costs of low inflation policies across the EU differ substantially.

Suggested Citation

  • Andreas Behr, 2006. "Properties of the Histogram Location Approach and the Extent and Change of Downward Nominal Wage Rigidity in the EU," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 3(1), pages 15-29, June.
    • Handle: RePEc:liu:liucej:v:3:y:2006:i:1:p:15-29
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    File URL: https://ejce.liuc.it/18242979200601/182429792006030102.pdf
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    Cited by:

    1. Iregui-Bohórquez, Ana María & Melo-Becerra, Ligia Alba & Ramírez-Giraldo, María Teresa, 2011. "Rigideces de los salarios a la baja en Colombia : evidencia empírica a partir de una muestra de salarios a nivel de firma," Chapters, in: López Enciso, Enrique & Ramírez Giraldo, María Teresa (ed.), Formación de precios y salarios en Colombia T.2, volume 2, chapter 18, pages 757-797, Banco de la Republica de Colombia.
    2. 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.

    More about this item

    Keywords

    Wage rigidity; Inflation; Unemployment;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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