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DOWNWARDS WAGE RIGIDITY, ENDOGENOUS SEPARATIONS AND FIRM TRAINING

Authors


Correspondence: Wolfgang Lechthaler, Kiel Institute for the World Economy, Duesternbrooker Weg 120, 24105 Kiel, Germany. Tel: +49-431-8814-272; Fax: +49-431-85853; Email: wolfgang.lechthaler@ifw-kiel.de.

ABSTRACT

This paper analyses the effect of downwards wage rigidity on wage setting, wage compression and firm training. It is shown that downwards wage rigidity in future periods induces a wage penalty and increases wage compression in the present period. However, contrary to previous work this is not sufficient to increase firms’ training investments. The reason lies in the endogeneity of separations, which become more frequent.

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