Academic journal article Lecturas de Economia

Practicas De Ajuste Salarial Y la Relacion Entre Precios Y Salarios: Evidencia a Partir De Encuestas a Empresas Colombianas

Academic journal article Lecturas de Economia

Practicas De Ajuste Salarial Y la Relacion Entre Precios Y Salarios: Evidencia a Partir De Encuestas a Empresas Colombianas

Article excerpt

Wage Adjustment Practices and the Link between Price and Wages: Survey Evidence from Colombian Firms

Pratiques d'ajustement des salaires et le lien entre les prix et les salaires: resultats dUn sondage aupres des entreprises colombiennes

--Introduction.--I. Survey Design.--II. Wage Adjustment Practices.--III. The Link between Wage and Price Adjustments.--Conclusions.--References.


Wage and price setting mechanisms play an important role in the transmission of monetary policy. According to Taylor (1999), when prices and wages are sticky, an increase in money supply affects output and employment in the short run. In the long run, however, the real economy is not affected by changes in money supply, because prices and wages gradually adjust and real money balances return to their initial level. The timing and frequency of wage-setting decisions are also relevant for the transmission of monetary policy to the real economy. In fact, monetary policy shocks should have larger effects on real variables after the decision on wage adjustments has been made and wages are relatively rigid. Conversely, when wage-setting decisions are uniformly distributed throughout the year and contracts last longer, the timing of monetary policy innovations within the year becomes less relevant (Olivei and Tenreyro, 2010).

In addition, the link between wage and price adjustments is important in terms of its implications for the effectiveness of monetary policy. Empirical evidence has shown price and wage-setting practices are quite heterogeneous and changes in these variables are not synchronized (e.g. Copaciu et al., 2010; Virbickas, 2010; Marques et al., 2010; Druant et al., 2009). These results could affect the size and the persistence of monetary policy shocks that affect output (Gali, 1994; Rotemberg and Woodford, 1999 and Taylor, 1999).

The aim of this paper is to shed light, at the microeconomic level, on firms' wage adjustment practices in the Colombian formal labor market through the use of a survey. In the existing literature, surveys at the firm level have focused mainly on wage rigidities. (1) In this paper, we explore other aspects of wage-setting; specifically, the timing and frequency of wage increases as well as the link between wage and price changes. We use an ad hoc survey of 1,305 small, medium and large firms from all sectors of the economy, except the public sector. One of the main benefits of using surveys is the possibility of asking firms directly about wage-setting practices, which allows for information that could not be obtained from databases, either at individual or firm level. Also, the survey provides evidence for the micro-foundation of the Central Bank's models.

The Eurosystem Wage Dynamics Network (WDN) conducted an ad hoc survey on price and wage-setting behavior among 17,000 firms in 17 countries of the European Union between the end of 2007 and the first half of 2008. (2) Within this network, a study of the frequency, timing and the relationship between wage and pricing policies and adjustments was carried out by Druant et al. (2009) for 15 countries. The results show European firms adjust wages less frequently than prices and country characteristics (i.e., labor market institutions) are relevant for wage adjustments, whereas sectoral differences are crucial for price changes. They also found that wages and prices feed into each other at the firm level.

Moreover, as part of the WDN, Marques et al. (2010) provide evidence on price and wage dynamics for the Portuguese economy. Their findings show most of the firms change wages annually, mainly in January, which could be explained by collective bargaining agreements at the sectoral or firm levels. They also investigated the relationship between the timing of price and wage revisions and found the presence of some synchronization between price and wage changes for half the firms. …

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