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In this manuscript, a contribution to the extensive literature on the equilibrium effects of labour market frictions, with particular reference to employment and wages, is provided by the authors. More precisely, a new empirical method to assess the output impact of nominal rigidities in the labour market (wage rigidities) is proposed by them. The authors' procedure is theoretically based, in the sense that it can be drawn from the few assumptions of the standard neoclassical model of economic growth. An application of their method is provided by the authors by carrying out an appropriate regression analysis through annual panel data on the twenty Italian regions in the sample period 1995–2020. The interest in these territorial units stems from the fact that the Italian labour market is affected by substantial nominal rigidities because of its centralized bargaining system, which sets wages without considering the presence of large local differences in labour productivity. It is found by the authors that the negative output impact of wage rigidities significantly varies across macro-areas (Northern and Central-Southern regions), especially when human capital is considered. [ABSTRACT FROM AUTHOR]

Unlike the classic market vision, where demand and supply meet immediately, at no cost, and prices are determined in such a way that demand equals supply, in the real world frictions occur in the searching process, the price offers of one of the parties are considered too high, be it the goods or services market, the real estate market or the labor market, so there are imbalances that vary over time, excess supply or excess demand. In this paper we aim to present the main models and theories in a labor market characterized by friction and wage rigidity, starting from contributions in the field of “frictions on search-based markets” by Peter A. Diamond, as well as from works belonging to economists Dale T. Mortensen and Christopher A. Pissarides, who developed and adapted the Diamond model to make it applicable to the labor market, thus resulting in one of the most used models for the analysis of unemployment and wage formation.

We build four different dynamic stochastic general equilibrium (DSGE) models for a small open economy reflecting both neoclassical and Keynesian specifications. A DSGE model with full price and wage flexibility is initially constructed and then modified through nominal wage and price rigidities. The ability of the models to replicate important features of the business cycle activity in the UK is explored through statistical and econometric analysis. Evidence suggests that a monetary shock under the Taylor model with price stickiness can replicate a significant portion of the business cycle activity in the UK economy. [ABSTRACT FROM AUTHOR]

This paper estimates an adjusted gravity model by directly measuring downward wage rigidities based on our modified regime-switching specification in order to investigate the effect of labor market flexibility on the flows of foreign direct investment (FDI) between Korea and 18 counterpart countries. To measure wage-cost rigidities, we employ firm-specific sales data for 410,012 firms in 19 countries obtained from Compustat as a relevant driver of wage costs extracted from earnings data by International Labor Organization (ILO). Our results suggest that greater wage rigidities in a counterpart country are associated with less net-outflows of FDI in Korea. [ABSTRACT FROM AUTHOR]

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This paper investigates the immigration impact on native outcomes using microlevel data for France. I find that immigration does not affect the wages of competing natives, but induces adverse employment effects. This finding is consistent with a wage structure that is rigid in France. The quality of the data allows to dig more deeply into the interpretation of the immigration impact. First, I show that immigrants displace native workers because they are more willing to work at lower wages due to lower outside options. Second, I find that natives on short-term contracts, who are less subject to wage rigidities, do experience wage losses due to immigration. [ABSTRACT FROM AUTHOR]

Whereas microeconomic studies point to pronounced downward rigidity of nominal wages in the US economy, the standard Phillips curve neglects such a feature. Using a stochastic frontier model, we find macroeconomic evidence of a strictly nonnegative error in an otherwise standard Phillips curve in post-war data on the US nonfinancial corporate sector. This error depends on growth in the profit ratio, output, and trend productivity, which should all determine the flexibility of wage adjustments. As the error usually surges during an economic downturn, the empirical model suggests that the downward pressure on inflation arising from higher unemployment in a standard Phillips curve framework is significantly cushioned. This might help to understand the robustness of inflation especially in the most recent past. In general, the cyclical dynamics of inflation appear to be more complex than captured by a conventional Phillips curve. Copyright © 2013 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

This paper uses a survey of 1.305 Colombian firms to explore wage setting mechanisms, the nature and sources of wage rigidities, and the link between wages and prices. Existing literature has focused on European and North American countries, and this is perhaps the first study that uses a wage survey for a Latin American country. Our findings indicate that more than 95% of firms increase wages once a year, mainly in January, suggesting that wage increases are time dependent. In addition, the most important factors when deciding wage increases are the firm's financial situation, the level of productivity and the performance of the labor force. The results support the view that nominal wages are downward rigid. Interestingly, it appears that the most important factor for not reducing base wages during a crisis, is to avoid the loss of the more experienced and productive workers, which is related to the efficiency wage theory. [ABSTRACT FROM AUTHOR]