Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Cleveland
Working Papers (Old Series)
The incidence of nominal and real wage rigidities in Great Britain: 1978–1998
Richard D. Barwell
Mark E. Schweitzer
Abstract

This paper analyzes the extent of rigidities in wage setting in Great Britain over the 1980s and 1990s. Our estimation strategy, which generalizes the work of Altonji and Devereux (2000), models the notional wage growth distribution--the distribution of nominal wage growth that would occur in the absence of rigidities in pay--while allowing for the presence of measurement error in the data. The model then allows for the possibility that the nominal wage growth of a fraction of the workforce may be subject to a nominal or real downward rigidity. Our model suggests that real rigidities in wage setting are more prevalent than nominal rigidities, 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 microfoundation 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.


Download Full text
Cite this item
Richard D. Barwell & Mark E. Schweitzer, The incidence of nominal and real wage rigidities in Great Britain: 1978–1998, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 0508, 2005.
More from this series
JEL Classification:
Subject headings:
Keywords: Wages - Great Britain
For corrections, contact 4D Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal