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Wage Rigidity and Disinflation in Emerging Countries †

Wage Rigidity and Disinflation in Emerging Countries † Abstract This paper examines the consequences of rapid disinflation for downward wage rigidities in two emerging countries, Brazil and Uruguay. Although wage rigidities are altered by disinflation, in neither of the two countries does price stability eliminate frictions in wage-setting mechanisms. In a context of individual wage negotiations and weak unions, disinflation in Uruguay puts an end to its history of indexation, but strong resistance to nominal wage cuts emerges. In strongly unionized Brazil, wage indexation is highly persistent, but the introduction of inflation targeting by the Central Bank in 1999 moves the focal point of wage negotiations to expected inflation. (JEL E31, E52, J31, J51, O11, O15, O23 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Wage Rigidity and Disinflation in Emerging Countries †

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Publisher
American Economic Association
Copyright
Copyright © 2014 by the American Economic Association
Subject
Articles
ISSN
1945-7715
eISSN
1945-7715
DOI
10.1257/mac.6.1.102
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper examines the consequences of rapid disinflation for downward wage rigidities in two emerging countries, Brazil and Uruguay. Although wage rigidities are altered by disinflation, in neither of the two countries does price stability eliminate frictions in wage-setting mechanisms. In a context of individual wage negotiations and weak unions, disinflation in Uruguay puts an end to its history of indexation, but strong resistance to nominal wage cuts emerges. In strongly unionized Brazil, wage indexation is highly persistent, but the introduction of inflation targeting by the Central Bank in 1999 moves the focal point of wage negotiations to expected inflation. (JEL E31, E52, J31, J51, O11, O15, O23 )

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jan 1, 2014

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