How Wages Change: Micro Evidence from the International Wage Flexibility Project

Abstract

Workers' wages are not set in a spot market. Instead, the wages of most workers—at least those who do not switch jobs—typically change only annually and are mediated by a complex set of institutions and factors such as contracts, unions, standards of fairness, minimum wage policy, transfers of risk, and incomplete information. The goal of the International Wage Flexibility Project (IWFP)—a consortium of over 40 researchers with access to individual workers' earnings data for 16 countries—is to provide new microeconomic evidence on how wages change for continuing workers. We investigate the extent of wage flexibility, with a particular focus on the extent of downward wage rigidity; and explore how measures of wage flexibility are affected by the wage-setting regimes that typically vary by country.