Properties of the Histogram Location Approach and the Extent and Change of Downward Nominal Wage Rigidity in the EU
The histogram location approach has been proposed by Kahn (1997) to estimate the fraction of wage cuts prevented by downward nominal wage rigidity. In this paper, we analyze the validity of the approach by means of a simulation study which yielded evidence of unbiasedness but also of potential underestimation of rigidity parameter uncertainty and therefore of potential anticonservative inference. We apply the histogram location approach to estimate the extent of downward nominal wage rigidity across the EU for 1995-2001. Our data base is the User Data Base (UDB) of the European Community Household Panel (ECHP). The results show wide variation in the fraction of wage cuts prevented by nominal wage rigidity across the EU. The lowest rigidity parameters are found for the UK, Spain and Ireland, the largest for Portugal and Italy. Analyzing the change of rigidity between sub periods 1995-1997 and 1999-2001 even shows an widening of the differences in nominal wage rigidity. Due to the finding of large differences across the EU, the results imply that the costs of low inflation policies across the EU differ substantially.
Are wages rigid in Colombia?: Empirical evidence based on a sample of wages at the firm level
This paper uses Colombian data at the firm level for the period 1999 to 2006 to provide microeconomic evidence on the existence and extent of downward nominal wage rigidity. To conduct the analysis, we use a rich panel of firms for white and blue collar workers, consisting of 1517 firms for the former and 781 firms for the latter. The presence of wage rigidity is determined by means of three statistic techniques used in recent literature, such as the analysis of the histograms of the distribution of wage changes, the LSW statistic and the Kahn test. The results suggest the existence of downward nominal wage rigidities; it is worth mentioning that rigidity is higher for blue collar workers than white collar workers, since the increase in the wages of the blue workers is generally done by taking into account the change in the minimum wage, which is why a higher rigidity would be expected.
Underground Activity and Institutional Change: Productive, Protective and Predatory Behavior in Transition Economies
This paper examines why some transitions are more successful than others by focusing attention on the role of productive, protective and predatory behaviors from the perspective of the new institutional economics. Many transition economies are characterized by a fundamental inconsistency between formal and informal institutions. When formal and informal rules clash, noncompliant behaviors proliferate, among them, tax evasion, corruption, bribery, organized criminality, and theft of government property. These wealth redistributing protective and predatory behaviors activities absorb resources that could otherwise be used for wealth production resulting in huge transition costs. Noncompliant behaviors--evasion, avoidance, circumvention, abuse, and/or corruption of institutional rules--comprise what we can be termed underground economies. A variety of underground economies can be differentiated according to the types of rules violated by the noncompliant behaviors. The focus of the new institutional economics is on the consequences of institutions--the rules that structure and constrain economic activity--for economic outcomes. Underground economics is concerned with instances in which the rules are evaded, circumvented, and violated. It seeks to determine the conditions likely to foster rule violations, and to understand the various consequences of noncompliance with institutional rules. Noncompliance with ‘bad” rules may actually foster development whereas non compliance with “good” rules will hinder development. Since rules differ, both the nature and consequences of rule violations will therefore depend on the particular rules violated. Institutional economics and underground economics are therefore highly complementary. The former examines the rules of the game, the latter the strategic responses of individuals and organizations to those rules. Economic performance depends on both the nature of the rules and the extent of compliance with them. Institutions therefore do affect economic performance, but it is not always obvious which institutional rules dominate. Where formal and informal institutions are coherent and consistent, the incentives produced by the formal rules will affect economic outcomes. Under these circumstances, the rule of law typically secures property rights, reduces uncertainty, and lowers transaction costs. In regimes of discretionary authority where formal institutions conflict with informal norms, noncompliance with the formal rules becomes pervasive, and underground economic activity is consequential for economic outcomes.