Working Paper No. 568
By Stephen Millard and Srdan Tatomir
This paper sets out the main lessons learnt from a survey of wage-setting in the United Kingdom, carried out as part of the European Central Bank’s Wage Dynamics Network survey covering 25 European countries. The survey covered the 2010–13 period, during which most firms experienced an increase in demand and a moderate increase in costs as the economy recovered from the Great Recession. We found the median frequency of wage-setting to be annual and that around 30% of firms directly and explicitly related changes in their base wage to inflation. There was also some evidence of downward nominal wage rigidity with around 25% of firms freezing wages in 2010, although by 2014 this had fallen to around 10%. The survey suggested that theories of wage rigidity based around the ability of workers to ‘shirk’ and/or fairness considerations explained why firms were reluctant to cut wages.