The Rationale for Wage Rigidity: Survey Evidence from German and US Firms

The study provides evidence for the rationale of wage rigidity in Germany compared to the United States. Based on a survey of 801 firms, we extend the study of Campbell and Kanlani (1997, this journal) by using more thorough econometric methods, for example, and find strong support for explanations based on labor union contracts and implicit wages for Germany. Furthermore, survey respondents indicated that labor union contracts and implicit contracts are important reasons for wage rigidity for the (less) skilled. Specific human capital and negative signals for new hires are important reasons for the highly skilled. In contrast to the US experience for German firms insider-outsider behavior, labor union contracts and specific human capital seem to be more important explanations of wage rigidity.