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Monetary Policy and the Cost of Wage Rigidity: Evidence from the Stock Market

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  • Ester Faia

    (Goethe University Frankfurt)

  • Vincenzo Pezone

    (Goethe University and SAFE)

Abstract

Using a unique confidential contract level dataset merged with firm-level asset price data, we find robust evidence that firms' stock market valuations and employment levels respond more to monetary policy announcements the higher the degree of wage rigidity. Data on the renegotiations of collective bargaining agreements allow us to construct an exogenous measure of wage rigidity. We also find that the amplification induced by wage rigidity is stronger for firms with high labor intensity and low profitability, providing evidence of distributional consequences of monetary policy. We rationalize the evidence through a model in which firms in different sectors feature different degrees of wage rigidity due to staggered renegotiations vis-a-vis unions.

Suggested Citation

  • Ester Faia & Vincenzo Pezone, 2019. "Monetary Policy and the Cost of Wage Rigidity: Evidence from the Stock Market," 2019 Meeting Papers 278, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:278
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    Cited by:

    1. Bernardo Fanfani, 2019. "The Employment Effects of Collective Bargaining," Working papers 064, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    2. Adamopoulou, Effrosyni & Manaresi, Francesco & Rachedi, Omar & Yurdagul, Emircan, 2021. "Minimum Wages and Insurance within the Firm," IZA Discussion Papers 14943, Institute of Labor Economics (IZA).
    3. Adamopoulou, Effrosyni & Villanueva, Ernesto, 2020. "Wage Determination and the Bite of Collective Contracts in Italy and Spain: Evidence from the Metalworking Industry," IZA Discussion Papers 13542, Institute of Labor Economics (IZA).
    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. Jacquinot, Pascal & Lozej, Matija & Pisani, Massimiliano, 2022. "Macroeconomic effects of tariffs shocks: The role of the effective lower bound and the labour market," Journal of International Money and Finance, Elsevier, vol. 120(C).
    6. Carreño, José Gabo & Uras, Burak, 2024. "Macro welfare effects of flexible labor contracts," European Economic Review, Elsevier, vol. 161(C).
    7. Devicienti, Francesco & Fanfani, Bernardo, 2021. "Firms' Margins of Adjustment to Wage Growth: The Case of Italian Collective Bargaining," IZA Discussion Papers 14532, Institute of Labor Economics (IZA).
    8. Adamopoulou, Effrosyni & Villanueva, Ernesto, 2022. "Wage determination and the bite of collective contracts in Italy and Spain," Labour Economics, Elsevier, vol. 76(C).

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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