Staff Reports
How Wages Change: Micro Evidence from the International Wage Flexibility Project
February 2007 Number 275
JEL classification: E3, J3, J5

Authors: William T. Dickens, Lorenz Goette, Erica L. Groshen, Steinar Holden, Julian Messina, Mark E.Schweitzer, JarkkoTurunen, and Melanie E.Ward

How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals’ earnings in thirty-one different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries.

Available only in PDFPDF30 pages / 236 kb

For a published version of this report, see William T. Dickens, Lorenz Goette, Erica L. Groshen, Steinar Holden, Julian Messina, Mark E. Schweitzer, Jarkko Turunen, and Melanie E. Ward, "How Wages Change: Micro Evidence from the International Wage Flexibility Project," Journal of Economic Perspectives 21, no.2 (spring 2007): 195-214.

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