Downward Nominal Wage Rigidity in Services: Direct Evidence from a Firm Survey

The paper uses a new German employer survey on wage setting practices to analyze incidence and sources of nominal wage rigidity in services vs. manufacturing. We observe that wage freezes are significantly more frequent and wage cuts less frequent in services. Reasons preventing wage cuts reported by employers suggest that fear of excess worker turnover could explain this distinct behavior.nominal wage rigidity, efficiency wages, manufacturing and services, Germany

Sectoral differences in wage freezes and wage cuts: evidence from a new firm survey

The paper provides evidence concerning incidence and sources of nominal wage rigidity in services and manufacturing, using a new and large employer survey on wage and price setting behaviour for Germany. We observe that wage freezes are more frequent in services than in manufacturing, whereas wage cuts are less frequent. The significant sector gaps do not vanish after controlling for relevant firm characteristics influencing the incidence of wage freezes and wage cuts, notably coverage by collective agreements and the degree of price competition on the product market. An analysis of firms' view on the reasons preventing wage cuts suggests that specific fear of excess worker turnover could explain distinct wage setting behaviour in services. --Nominal Wage Rigidity,Efficiency Wages,Manufacturing and Services,Germany

Modeling German Unification in a Disequilibrium Framework

Unification fundamentally changed the terms of quantitative macroeconomic analysis for Germany. Two main areas concerned are data availability for the eastern part of Germany and structural changes within the behavioural equations after unification. Our paper presents results from the estimation of a macroeconometric disequilibrium model formerly developed for West Germany. The challenge is to handle the structural break in the time series and the economic model by applying a SUR estimator for West Germany and the Federal Republic of Germany, respectively. The main focus here is the modeling of investment expenditures and employment adjustment. The empirical results are encouraging and show that the disequilibrium model is flexible enough to analyze the changes induced by unification. In particular, our results reveal that most behavioural relationships remained fairly stable when switching from West Germany to the Federal Republic of Germany. One notable exception is investment behaviour which - during the first years after unification - was strongly affected by fiscal incentives in East Germany. Preliminary policy simulations show effects of these fiscal incentives and the demand shock to the West German economy. The simulated responses depend on the prevailing regimes on goods and labour markets

Investment and Employment Adjustment after Unification: Some Results from a Macroeconometric Disequilibrium Model

The macroeconomic development in West Germany in the aftermath of unification was characterized by a boom period in 1990/1991, a deep recession in 1992/1993 and a slow recovery since then. In East Germany, in contrast, unification induced a breakdown of production and employment followed by a slow recovery starting in 1992. In this paper, a macroeconometric model is used to assess this development. In particular, estimation results for investment and employment adjustment after unification are reported. The estimates are based on a disequilibrium model formerly developed for West Germany and extended in this paper to cover also unified Germany. The results reveal that the adjustment of investment and employment can be analysed with the same theoretical model for West and East Germany. However, the adjustment speed for investment differs significantly at least in the early years after unification, while changes in the mismatch on the labour market and employment adjustment are less pronounced

Modeling German unification in a disequilibrium framework

Unification fundamentally changed the terms of quantitative macroeconomic analysis for Germany. Two main areas concerned are data availability for the eastern part of Germany and structural changes within the behavioural equations after unification. Our paper presents results from the estimation of a macroeconometric disequilibrium model formerly developed for West Germany. The challenge is to handle the structural break in the time series and the economic model by applying a SUR estimator for West Germany and the Federal Republic of Germany, respectively. The main focus here is the modeling of investment expenditures and employment adjustment. The empirical results are encouraging and show that the disequilibrium model is flexible enough to analyze the changes induced by unification. In particular, our results reveal that most behavioural relationships remained fairly stable when switching from West Germany to the Federal Republic of Germany. One notable exception is investment behaviour which { during the first years after unification { was strongly affected by fiscal incentives in East Germany. Preliminary policy simulations show effects of these fiscal incentives and the demand shock to the West German economy. The simulated responses depend on the prevailing regimes on goods and labour markets. -- Die deutsche Wiedervereinigung veränderte die Ausgangslage für makroökonometrische Analysen. Dies betrifft zum einen die Verfügbarkeit von Daten in Ostdeutschland, zum anderen die in Folge der Wiedervereinigung bedingten strukturellen Veränderungen in den Verhaltensgleichungen. Diese Studie zeigt die Schätzergebnisse eines makroökonometrischen Ungleichgewichtsmodells, das für Westdeutschland entwickelt wurde. Zum einen bestand die Herausforderung darin, eine Lösung für den Strukturbruch in den Zeitreihen zu finden, zum anderen darin, die strukturellen Veränderungen in den Modellgleichungen mittels eines SUR-Ansatzes für West- und Gesamtdeutschland abzubilden. Den Schwerpunkt dieses Beitrags bildet die Modellierung der Investitionen und der Beschäftigungsanpassung. Die Ergebnisse zeigen, dass das Ungleichgewichtsmodell flexibel genug ist, um die Veränderungen infolge der deutschen Wiedervereinigung zu analysieren. Die meisten Verhaltensgleichungen bleiben bei dem Übergang von West- zu Gesamtdeutschland stabil. Eine Ausnahme bildet das durch die Öffentlichen Fördermittel beeinflusste Investitionsverhalten. Vorläufige Simulationen untersuchen die Wirkungen des vereinigungsbedingten Nachfrageschocks im Westen sowie der Öffentlichen Fördermassnahmen im Osten. Die Simulationsergebnisse hängen von den jeweils vorherrschenden Regimen auf dem Arbeits- und Gütermarkt ab.

Price, wage and employment response to shocks: evidence from the WDN survey

This paper analyses information from survey data collected in the framework of the Eurosystem’s Wage Dynamics Network (WDN) on patterns of firm-level adjustment to shocks. We document that the relative intensity and the character of price vs. cost and wage vs. employment adjustments in response to cost-push shocks depend – in theoretically sensible ways – on the intensity of competition in firms’ product markets, on the importance of collective wage bargaining and on other structural and institutional features of firms and of their environment. Focusing on the passthrough of cost shocks to prices, our results suggest that the pass-through is lower in highly competitive firms. Furthermore, a high degree of employment protection and collective wage agreements tend to make this pass-through stronger. JEL Classification: J31, J38, P50European Union, Labour-market institutions, survey data, wage bargaining

Sectoral Differences in Wage Freezes and Wage Cuts : Evidence from a New Firm Survey

The paper provides evidence concerning incidence and sources of nominal wage rigidity in services and manufacturing, using a new and large employer survey on wage and price setting behaviour for Germany. We observe that wage freezes are more frequent in services than in manufacturing, whereas wage cuts are less frequent. The significant sector gaps do not vanish after controlling for relevant firm characteristics influencing the incidence of wage freezes and wage cuts, notably coverage by collective agreements and the degree of price competition on the product market. An analysis of firms’ view on the reasons preventing wage cuts suggests that specific fear of excess worker turnover could explain distinct wage setting behaviour in services

Downward nominal wage rigidity in services: Direct evidence from a firm survey

The paper uses a new German employer survey on wage setting to analyze incidence and sources of nominal wage rigidity in services vs. manufacturing. Mainly for fear of excess worker turnover, wage cuts are significantly less frequent in services.Nominal wage rigidity Efficiency wages Manufacturing and services Germany