Time-dependent or state-dependent wage-setting? Evidence from periods of macroeconomic instability

• Main Authors: Sigurdsson, Jósef, Sigurdardottir, Rannveig
• Format: Article in Journal/Newspaper
• Language: unknown
• Subjects: Iceland
• Online Access: http://www.sciencedirect.com/science/article/pii/S0304393216000039

Administrative data on monthly wages in Iceland during 1998–2010 provide new insight into nominal wage rigidity. Unlike the data used in previous work, ours have a higher frequency, minimal measurement error, and a long sample including a period of substantial macroeconomic instability. We find that the monthly frequency of nominal wage changes is 13 percent. Although nominal wage cuts are rare, their frequency rises following a large macroeconomic shock. Timing of wage changes is both time-dependent and state-dependent: we find evidence of synchronization of adjustment and contracts of fixed duration, but also that inflation and unemployment over the wage spell affect the timing of adjustment. Wage rigidity; Wage setting; Microdata evidence;