Endogenous Wage Rigidity

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 05.10.2004, 12:15 - 13:30


Presentation by 

Jonas Agell (Stockholm University)


A recent literature has used surveys of those who set wages to learn about the sources of sticky wages. Methodologically, we overcome many of the objections that have been raised against this work. Substantively, we report a number of unique results. First, the reasons for wage rigidity differ significantly between large and small firms, and between the high- and low-end of the labor market. Second, money illusion is a widespread phenomenon. Third, we report significant interaction effects between sources of wage rigidity: efficiency wage mechanisms involving reciprocity and voluntary turnover reinforce rigidities due to worker bargaining power, and unions reinforce rigidities due to external pay comparisons. Finally, there appears to be important gender differences in pay bargaining and work moral.

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