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Wage Flexibility in Turbulent Times: A Practitioner’s Guide, with an Application to Poland

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  • International Monetary Fund

Abstract

This paper reviews several methods to measure wage flexibility, and their suitability for evaluating the extent of such flexibility during times of structural change, when wage distributions and wage curves can be particularly volatile. The paper uses nonparametric estimation to capture possible nonlinearities in the wage curve and relaxes the assumption of a stable wage distribution over time by linking the shape of the wage change distribution to macroeconomic variables. The proposed methodology is applied to Polish micro data. The estimates confirm that wages are less elastic in a high-unemployment/low-wage environment. Based on a comparison of actual and counterfactual wage distributions, the effects of nominal wage rigidities on real wages, and thus, on the labor market and the real economy, were limited until 1998, but have been quite significant thereafter.

Suggested Citation

  • International Monetary Fund, 2005. "Wage Flexibility in Turbulent Times: A Practitioner’s Guide, with an Application to Poland," IMF Working Papers 2005/134, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/134
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    1. Kamil Galuscak & Daniel Munich, 2003. "Microfoundations of the Wage Inflation in the Czech Republic," Working Papers 2003/01, Czech National Bank.
    2. International Monetary Fund, 2003. "Republic of Poland: Selected Issues," IMF Staff Country Reports 2003/188, International Monetary Fund.
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    8. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
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    Cited by:

    1. Brzoza-Brzezina, Michal & Socha, Jacek, 2006. "Downward nominal wage rigidity in Poland," MPRA Paper 843, University Library of Munich, Germany, revised Nov 2006.
    2. Gani Ramadani & Nikola Naumovski, 2014. "Wage and Price Setting in Macedonia: Evidence from Survey Data," Working Papers 2015-05, National Bank of the Republic of North Macedonia.
    3. VAN POECK, André & VEINER, Maret, 2007. "Wage flexibility in the new European Union members: How different from the old?," Working Papers 2007016, University of Antwerp, Faculty of Business and Economics.
    4. International Monetary Fund, 2006. "Republic of Poland: Selected Issues," IMF Staff Country Reports 2006/392, International Monetary Fund.

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