The degree of price stickiness implies that firms adjust prices about every three quarters and a half, while the estimate of the Rotemberg parameter for wage stickiness
is higher, in line with Zubairy (2014).
Barbiero and others (2017) demonstrate that the extent of appreciation depends on trade openness and the relative magnitude of price and wage stickiness
in nonlinear ways.
In new work with Martin Beraja and Juan Ospina, I estimate the amount of wage stickiness
using cross-state variation.
Using data on year-to-year nominal wage changes of job stayers, they report observing "both a substantial minority of workers reporting the same nominal wage in adjacent years (suggesting nominal wage stickiness
), but also a substantial minority reporting nominal wage cuts (suggesting nominal wage flexibility).
As Selgin argues, if 0% inflation is sufficient to avert unemployment caused by wage stickiness
, then 1% deflation will not cause unemployment when it coincides with a 1% increase in productivity.
This result, together with the low frequency of wage changes, provides evidence of wage stickiness
in the Colombian formal labor market.
As discussed in Section 2.2, the transition in the policy simulation from short-run wage stickiness
to long-run wage flexibility is governed by equation (E17).
(1996), 'Nominal wage stickiness
and aggregate supply in the Great Depression', Quarterly Journal of Economics, III (3), pp.
Nevertheless, because of nominal price and wage stickiness
, changes in household demand and spending affect the amount firms produce for a given level of prices.
The second qualification is that the presence of wage stickiness
means that price-inflation variability is generally not the only inflation term in the social welfare function; wage-inflation variability appears too (Erceg, Henderson, and Levin, 2000).
For instance, implicit wage contracts models a la Azariadis (1975), Baily (1974), and Gordon (1974) (ABG hereafter) have already been shown to be relatively effective in generating wage stickiness
(Hart & Holmstrom, 1987).