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.
"Wage Rigidity and Disinflation in Emerging Countries."
American Economic Journal: Macroeconomics,
Price Level; Inflation; Deflation
Wage Level and Structure; Wage Differentials
Trade Unions: Objectives, Structure, and Effects
Macroeconomic Analyses of Economic Development
Economic Development: Human Resources; Human Development; Income Distribution; Migration
Fiscal and Monetary Policy in Development