REFERENCE NORMS, STAGGERED WAGES, AND WAGE LEADERSHIP: THEORETICAL IMPLICATIONS AND EMPIRICAL EVIDENCE

This article presents an extension of the Taylor model with staggered wages in which wage setting is also influenced by reference norms. We show that reference norms can considerably increase the persistence of inflation but that the size of this effect depends on the exact definition (e.g., externa...

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Bibliographic Details
Published in:International economic review (Philadelphia) 2012-05, Vol.53 (2), p.569-592
Main Authors: Knell, Markus, Stiglbauer, Alfred
Format: Article
Language:English
Subjects:
Analytical forecasting
Asymmetry
Coefficients
Collective bargaining
Economic models
Empirical tests
Estimation methods
Inflation
Inflation rates
Leadership
Macroeconomics
Real rigidities
Regression coefficients
Studies
Taylor rule
Trade unions
Wage negotiations
Wages
Wages & salaries
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Summary:This article presents an extension of the Taylor model with staggered wages in which wage setting is also influenced by reference norms. We show that reference norms can considerably increase the persistence of inflation but that the size of this effect depends on the exact definition (e.g., external vs. internal, symmetric vs. asymmetric norms). Using data on collectively bargained wages in Austria from 1980 to 2006 we show that wage setting is strongly influenced by reference norms, that external norms seem to matter more than internal norms, and that there is a clear indication for the existence of wage leadership (asymmetric norms).
ISSN:0020-6598
1468-2354
DOI:10.1111/j.1468-2354.2012.00692.x