Firms' price and wage adjustment in Europe: Survey evidence on nominal stickiness

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in 17 European countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices, on average every 15 and 10 months, respectively. Price and, especially, wage adjustment exhibit a substantial degree of time-dependence. In particular, wage changes tend to cluster at a specific time of the year, mostly January in the majority of countries. The results of a multivariate analysis indicate that prices are more flexible when competitive pressures in product markets are strong and when labor costs account for a lower fraction of firms' total costs, whereas wages are more flexible when bargaining is decentralized and when the coverage of collective bargaining and the stringency of employment protection legislation are low. Price rigidities are higher in firms with a larger share of high-skilled/white-collar workers.

► We present new evidence on price and wage adjustment in Europe and on the extent of nominal rigidities.
► The analysis uses data collected through a firm-level survey conducted in 17 European countries.
► Firms adjust wages less frequently than prices, with a substantial degree of time-dependence.
► Prices are more flexible when competition is stronger and the incidence of labor costs is lower.
► Wages are more flexible when bargaining is decentralized and the stringency of EPL is low.