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Author: Michael W. L. Elsby Publisher: ISBN: Category : Wages Languages : en Pages : 72
Book Description
This paper formalizes and assesses empirically the implications of widely observed evidence for downward nominal wage rigidity (DNWR). It shows how a model of DNWR informed by diverse evidence for worker resistance to nominal wage cuts is nevertheless consistent with weak macroeconomic effects. This occurs because firms have an incentive to compress wage increases as well as wage cuts when DNWR binds. By neglecting potential compression of wage increases, the previous literature may have overstated the costs of DNWR to firms. Using a broad range of micro--data from the US and Great Britain I find that firms do indeed compress wage increases as well as wage cuts at times when DNWR binds. Accounting for this reduces the estimated increase in aggregate wage growth due to DNWR to be much closer to zero, consistent with the predictions of the model. These results suggest that DNWR may not provide a strong argument against the targeting of low inflation rates, as practiced by many monetary authorities. Importantly, though, this result is nevertheless consistent with evidence that suggests workers are averse to nominal wage cuts.
Author: Michael W. L. Elsby Publisher: ISBN: Category : Wages Languages : en Pages : 72
Book Description
This paper formalizes and assesses empirically the implications of widely observed evidence for downward nominal wage rigidity (DNWR). It shows how a model of DNWR informed by diverse evidence for worker resistance to nominal wage cuts is nevertheless consistent with weak macroeconomic effects. This occurs because firms have an incentive to compress wage increases as well as wage cuts when DNWR binds. By neglecting potential compression of wage increases, the previous literature may have overstated the costs of DNWR to firms. Using a broad range of micro--data from the US and Great Britain I find that firms do indeed compress wage increases as well as wage cuts at times when DNWR binds. Accounting for this reduces the estimated increase in aggregate wage growth due to DNWR to be much closer to zero, consistent with the predictions of the model. These results suggest that DNWR may not provide a strong argument against the targeting of low inflation rates, as practiced by many monetary authorities. Importantly, though, this result is nevertheless consistent with evidence that suggests workers are averse to nominal wage cuts.
Author: Steinar Holden Publisher: ISBN: Category : Economics Languages : en Pages : 60
Book Description
In most European countries, the prevailing terms of employment, including the nominal wage, can only be changed by mutual consent. I show that this feature implies that workers have a strategic advantage in the wage negotiations when they try to prevent a cut in nominal wages. If inflation is so low that some nominal wages have to be cut, the strategic advantage of the workers' induces higher unemployment in equilibrium. The upshot is a long run tradeoff between inflation and unemployment for low levels of inflation. The prediction that low inflation involves higher unemployment in Europe but not in the US, is consistent with previous empirical findings.
Author: Joseph G. Altonji Publisher: ISBN: Category : Inflation (Finance) Languages : en Pages : 48
Book Description
Using the Panel Study of Income Dynamics, we find that true wage changes have many fewer nominal cuts and more nominal freezes than reported nominal wage changes. The data overwhelmingly rejects a model of flexible wage changes and provides some evidence against a model of perfect downward rigidity in favor of a more general model. The more general model incorporates downward rigidity but specifies that nominal wage cuts may occur when large cuts would occur in the absence of wage rigidity. However, the results of the general model imply that nominal wage cuts are rare. We also analyze the personnel files of a large corporation and find cuts in base pay are rare and almost always associated with changes in full time status or a switch between compensation schemes involving incentives. Our evidence on the consequences of nominal wage rigidity is mixed. We find modest support for the hypothesis that workers who are overpaid because of nominal wage rigidity are less likely to quit.
Author: Michael W. L. Elsby
Author: Michael W. L. Elsby
Author: Michael W. L. Elsby
Author: Michael W. Elsby
Author: Bruce C. Fallick
Author: David E. Lebow
Author: Steinar Holden
Author: Sachiko Kuroda
Author: Steinar Holden
Author: Joseph G. Altonji
Author: André Kurmann