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How are firms' wages and prices linked: survey evidence in Europe
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How are firms' wages and prices linked: survey evidence in Europe

Author

Listed:
  • Martine Druant

    (National Bank of Belgium)

  • Silvia Fabiani

    (Bank of Italy)

  • Gabor Kezdig

    (Central European University)

  • Ana Lamo

    (European Central Bank)

  • Fernando Martins

    (Bank of Portugal)

  • Roberto Sabbatini

    (Bank of Italy, Economic Research Department)

Abstract

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market�s institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter also exhibits a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.

Suggested Citation

  • Martine Druant & Silvia Fabiani & Gabor Kezdig & Ana Lamo & Fernando Martins & Roberto Sabbatini, 2009. "How are firms' wages and prices linked: survey evidence in Europe," Temi di discussione (Economic working papers) 725, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_725_09
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    References listed on IDEAS

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    More about this item

    Keywords

    survey; wage rigidity; price rigidity; indexation; labour market institutions; time dependence;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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