How Prevalent Is Downward Rigidity in Nominal Wages? PDF Download
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Author: Michael W. Elsby Publisher: ISBN: Category : Languages : en Pages :
Book Description
For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers' nominal wage rates cannot be cut. Contrary evidence from household surveys reasonably has been discounted on the ground that the measurement of frequent wage cuts might be an artifact of reporting error. This article summarizes a more recent wave of studies based on more accurate wage data from payroll records and pay slips. By and large, these studies indicate that, except in extreme circumstances (when nominal wage cuts are either legally prohibited or rendered beside the point by very high inflation), nominal wage cuts from one year to the next appear quite common, typically affecting 15-25 percent of job stayers in periods of low inflation.
Author: Michael W. Elsby Publisher: ISBN: Category : Languages : en Pages :
Book Description
For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers' nominal wage rates cannot be cut. Contrary evidence from household surveys reasonably has been discounted on the ground that the measurement of frequent wage cuts might be an artifact of reporting error. This article summarizes a more recent wave of studies based on more accurate wage data from payroll records and pay slips. By and large, these studies indicate that, except in extreme circumstances (when nominal wage cuts are either legally prohibited or rendered beside the point by very high inflation), nominal wage cuts from one year to the next appear quite common, typically affecting 15-25 percent of job stayers in periods of low inflation.
Author: Ekaterina S. Jardim Publisher: ISBN: Category : Employment (Economic theory) Languages : en Pages : 23
Book Description
For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers' nominal wage rates cannot be cut. The U.S. evidence on this assumption has been inconclusive because of distortions from reporting error in household surveys. Following a British literature, we reconsider the issue with more accurate wage data from the payroll records of most employers in the State of Washington over the period 2005-2015. For every one of the 40 four-quarters-apart periods for which we observe year-to-year wage changes, we find that at least 20 percent of job stayers experience nominal wage reductions.
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: 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.