Wage and price setting: new evidence from Uruguayan firms

Abstract

This paper presents new evidence on wage and price setting based on a survey of more than 300 Uruguayan firms in 2013. Most of the firms set prices considering costs and adding a profit margin; therefore, they have some degree of market power. The evidence indicates that price increases appear quite flexible in Uruguay (prices are downward rigid). Most of the firms adjust their prices on an irregular basis, which suggests that price changes in Uruguay are state-dependent, although wage changes are concentrated in January and July. Interestingly, the cost of credit is seen as an irrelevant factor in explaining price increases. We also find that cost reduction is the principal strategy to a negative demand shock, and finally, that the adjustment of prices to changes in wages is relatively quick.

Keywords

• price setting
• labor market
• survey evidence
• uruguay