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2000

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Title Employment Effects Of Nominal-Wage Rigidity: An Examination Using Wage-Settlements Data
Author(s) Umar Ahmed Faruqui
Type Working Paper 2000-14
Date of
publication
July 2000
Language English
Abstract

The argument advocating a moderate level of inflation based on the downward nominal-wage rigidity (DNWR) hypothesis rests on three factors: its presence, extent, and negative impact in the labour market. This paper focuses on the employment effect of DNWR. It reviews the evidence presented by Simpson, Cameron, and Hum (1998), in light of a potential bias problem associated with their reduced-form model. We describe modifications to their employment model that aim to better isolate the effects of DNWR on employment growth. Analysis shows that empirical evidence in Simpson, Cameron, and Hum (1998) is sensitive to model specification. In contrast to Simpson, Cameron, and Hum (1998), who found—economically and statistically—significant employment costs for DNWR, in most of our specifications DNWR has no significant effect on employment growth.

Bank
topic index
Labour markets
JEL
classification
C23, J23, J30

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