Abstract
We explore the existence of DRWR at the industry level, based on data from 19 OECD countries for the period 1973-99, covering in total 449 country-year samples.
Using a nonparametric statistical method, which allows for country- and year-specific variation in both the median and the dispersion of industry wage changes, we investigate whether DRWR compresses the country-year specific distributions of industry wage changes.
We find that DRWR does compress the wage-change distributions in OECD countries overall, as well as for specific geographical regions and time periods. The effect is highly significant, but there are not many real wage cuts that are prevented.
Quantitatively more important, however, DRWR attenuates larger real wage cuts, thus leading to higher real wages than in a counter-factual flexible wage setting. Generally, we find stronger evidence for downward nominal wage rigidity than for downward real wage rigidity.
There is some evidence that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density.