WageS are flexible, aren’t they? Evidence from monthly micro Wage data

This paper assesses the degree of wage flexibility in Luxembourg using anadministrative data set on individual base wages covering the entire economy over theperiod 2001-2006 with monthly frequency. We find that the wage flexibility at thediscretion of the firm is rather low once we limit measurement error and remove wagechanges due to institutional factors (indexation, changes in statutory minimum wage,age and marital status). The so adjusted frequency of wage change lies between 5%and 7%. On average, wages change less often than consumer prices. Less than onepercent of (nominal) wages are cut...

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Year of publication:	2009-07-01
Authors:	Lünnemann, Patrick ; Wintr, Ladislav
Institutions:	European Central Bank
Published in:	Working papers published in 2009 ECB Working Paper Series No. 1074, July 2009
Subject:	Arbeitsflexibilisierung \| Lohn \| Lohnstarrheit \| wage rigidity

Abstract
Non-technical summary
1 Introduction
2 Key elements of the labour marketin Luxembourg
2.1 The wage indexation mechanism
2.2 The statutory minimum wage
2.3 Other coordination mechanisms
3 Data, methods and variables
3.1 Baseline dataset
3.2 Cleaned dataset
3.3 Adjusted dataset
3.4 Methods and variables
4 Results
4.1 Direct measures of wage changefrequency and size
4.2 Results based on the multiple break test
4.3 Results for different categories
5 Conclusion
References
Appendices
European Central Bank Working Paper Series

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