Wage Rigidity and Disinflation in Emerging Countries
This paper examines the consequences of rapid disinflation for downward wage rigidities in two emerging countries, Brazil and Uruguay, relying on high quality matched employer-employee administrative data. Downward nominal wage rigidities are more...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111031104848 http://hdl.handle.net/10986/3629 |
| Summary: | This paper examines the consequences of
rapid disinflation for downward wage rigidities in two
emerging countries, Brazil and Uruguay, relying on high
quality matched employer-employee administrative data.
Downward nominal wage rigidities are more important in
Uruguay, while wage indexation is dominant in Brazil. Two
regime changes are observed during the sample period,
1995-2004: (i) in Uruguay wage indexation declines, while
workers' resistance to nominal wage cuts becomes more
pronounced; and (ii) in Brazil, the introduction of
inflation targeting by the Central Bank in 1999 shifts the
focal point of wage negotiations from changes in the minimum
wage to expected inflation. These regime changes cast doubts
on the notion that wage rigidity is structural in the sense
of Lucas (1976). |
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