Nominal Wage Flexibility and Institutions: Preliminary Micro-Evidence from the Europanel

Abstract

This paper analyses wage dynamics at individual level using the European Community Household Panel data. We compare yearly wage changes of full-time employees staying in the same firm for twelve European countries during the 1994-96 time-period. For all the European countries we find evidence of nominal wage rigidity. The percentage of employees receiving no wage changes is different across countries, with Germany and Ireland ranking at the top and the bottom respectively. At the same time, nominal wage cuts are not rare. We therefore consider the impact of the bargaining structure and institutions in the European labor markets on the extent of nominal wage flexibility observed.

Keywords: Nominal wage rigidity, centralisation, coverage, employment, protection legislation

JEL Classification: J3, J51