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Downward Wage Rigidity And Automatic Wage Indexation: Evidence From Monthly Micro Wage Data

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Executive Summary

This paper assesses the degree of downward wage rigidity in Luxembourg using an administrative monthly data set on individual wages covering the entire economy over the period from January 2001 to January 2007. After limiting for measurement error, which would otherwise bias downwards the estimates of wage rigidity, the authors conclude that nearly all workers in Luxembourg are potentially subject to downward real wage rigidity. The results are robust to different procedures to adjust for measurement error and methods for estimation of downward wage rigidity. They report relatively small differences in the frequency of nominal wage cuts across occupational groups and sectors.

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