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American Economic Journal: Macroeconomics: Vol. 6 No. 1 (January 2014)

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Wage Rigidity and Disinflation in Emerging Countries

Article Citation

Messina, Julián, and Anna Sanz-de-Galdeano. 2014. "Wage Rigidity and Disinflation in Emerging Countries." American Economic Journal: Macroeconomics, 6(1): 102-33.

DOI: 10.1257/mac.6.1.102

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.

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Authors

Messina, Julián (World Bank and U Girona)
Sanz-de-Galdeano, Anna (CRES, U Pompeu Fabra and World Bank)

JEL Classifications

E31: Price Level; Inflation; Deflation
E52: Monetary Policy
J31: Wage Level and Structure; Wage Differentials
J51: Trade Unions: Objectives, Structure, and Effects
O11: Macroeconomic Analyses of Economic Development
O15: Economic Development: Human Resources; Human Development; Income Distribution; Migration
O23: Fiscal and Monetary Policy in Development

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American Economic Journal: Macroeconomics


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