Abstract
Real wage rigidity is often blamed for causing unemployment in the wake of adverse real shocks, like changes in productivity or the terms of trade. Likewise nominal wage rigidity is blamed for causing unemployment in the wake of adverse nominal shocks, like falls in nominal demand.1 However, there has been relatively little systematic discussion of how these concepts should be defined. Some authors (e.g. Sachs, 1979) have defined real wage rigidity as the opposite of nominal wage rigidity, with the US nominally rigid and Europe really rigid.2 The rigidity of European real wages has then been used to explain why Europe has experienced a greater increase in unemployment since 1973 than the US. But in this discussion real wage rigidity has not been measured in a way which would in fact predict how much unemployment would result from a given real shock. The discussion has focused on the degree of nominal inertia in the system. But the unemployment cost of real shocks does not depend primarily on the degree of nominal inertia but rather on the effect of unemployment in the Phillips curve.
European Economic Review, 21 (1983), pp. 11–39. © 1983 North-Holland Publishing Company. The authors are extremely grateful to T. Casas-Bedos for computing assistance, to C. Bismut, W. Buiter, G. Fethke, RJ. Gordon, S. Nickell and J.B. Taylor for helpful advice and comments, and to the Social Science Research Council for financial support.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Branson, W.H. and J.J. Rotemberg (1980) ‘International Adjustment with Wage Rigidity’, European Economic Review, 13, 309–32.
Bruno, M. (1980) ‘Import Prices and Stagflation in the Industrial Countries: A Cross-Section Analysis’, Economic lournal, 90, 479–92.
Gordon, R.J. and S.R. King (1982) ‘The Output Cost of Disinflation in Traditional and Vector-Autoregressive Models’, Brookings Papers on Economic Activity, 1, 205–42.
Gray, J.A. (1976) ‘Wage Indexation: A Macroeconomic Approach’, lournal of Monetary Economics, 2, 221–35.
Grubb, D., R. Jackman and R. Layard (1982) ‘Causes of the Current Stagflation’, Review of Economic Studies, 49, 707–30.
Lucas, R.E. (1973) ‘Some International Evidence on Output-Inflation Trade-offs’, American Economic Review, 63, 326–34.
Phelps, E.S. (1972) Inflation Policy and Unemployment Theory (New York: Norton).
Phelps, E.S. (1978) ‘Inflation Planning Reconsidered’, Economica, 45, 109–24.
Sachs, J. (1979) ‘Wages, Profits and Macroeconomic Adjustment: A Comparative Study’, Brookings Papers on Economic Activity, 2, 269–333.
Sargan, J.D. (1964) ‘Wages and Prices in the UK’, in P.E. Hart, G. Mills and J.K. Whittaker (eds), Econometric Analysis for National Economic Planning (New York: Macmillan).
Taylor, J.B. (1980) ‘Output and Price Stability: An International Comparison’, lournal of Economic Dynamics and Control, 2, 109–32.
Copyright information
© 1999 Richard Layard
About this chapter
Cite this chapter
Grubb, D., Jackman, R. (1999). Wage Rigidity and Unemployment in OECD Countries (1983). In: Tackling Unemployment. Palgrave Macmillan, London. https://doi.org/10.1057/9780230379206_3
Download citation
DOI: https://doi.org/10.1057/9780230379206_3
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-40523-7
Online ISBN: 978-0-230-37920-6
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)