The cost of wage rigidity

Ester Faia, Vincenzo Pezone

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

Abstract

Private efficiency of wage rigidity has taken centre stage in economics. Measuring its effects has proven elusive for lack of actual wage data. Using a unique confidential labour contract-level dataset matched with firm-level high-frequency asset prices, we find robust evidence that firms’ stock prices and employment fluctuate more in response to monetary policy announcements, the higher the degree of wage rigidity. Hand-collected information on the periods across renegotiations of collective bargaining agreements allow us to construct an accurate and predetermined measure of wage rigidity. We find that the amplification induced by wage rigidity is stronger for firms with high labour intensity, low profitability, and a large share of workers with more rigid contracts.

Original languageEnglish
Pages (from-to)301-339
Number of pages39
JournalReview of Economic Studies
Volume91
Issue number1
DOIs
Publication statusPublished - Jan 2024

Keywords

  • Firms’ cost of wage rigidity
  • Heterogeneous wage rigidity
  • High-frequency identification
  • Matched employer–employee dataset
  • Predetermined measure of wage rigidity

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