Nominal and real wage rigidities. In theory and in Europe

► Studies the relation between real wage rigidity (RWR) and nominal price and wage rigidity. ► Shows that the two nominal rigidities are the main determinants of RWR. ► Also solves the model with heterogeneous contract length, clustering of contracts and indexation. ► Shows that in order to explain the cross-country variation in RWR one has to take institutional characteristics of wage-setting into account.