Does downward nominal wage rigidity dampen wage increases?

Abstract

We are grateful to Anita C. Bott, Harry Haupt and Jürgen Wiemers for helpful suggestions. The authors also wish to thank participants of the 9 th EEFS conference in Athens, the 10 th BGPE workshop inRegensburg and the GradAB Colloquium of the IAB in Nuremberg for valuable comments.Mit der Reihe "IAB-Discussion Paper" will das Forschungsinstitut der Bundesagentur für Arbeit den Dialog mit der externen Wissenschaft intensivieren. Durch die rasche Verbreitung von Forschungsergebnissen über das Internet soll noch vor Drucklegung Kritik angeregt und Qualität gesichert werden.The "IAB-Discussion Paper" is published by the research institute of the German Federal Employment Agency in order to intensify the dialogue with the scientific community. The prompt publication of the latest research results via the internet intends to stimulate criticism and to ensure research quality at an early stage before printing.

Downwards Wage Rigidity, Endogenous Separations and Firm Training

“…Thus because the worker will have an advantage over the firm in the second period and both parties are foreseeing this, the worker has to compensate the firm by accepting a lower first-period wage, compared to the standard model. This result is in line with recent empirical evidence (see Gielen and van Ours, 2010;Stueber and Beissinger, 2010). The only term that remains to be explained is the denominator, which is equal to one plus the probability that the wage is binding in the second period.…”

Downward Nominal Wage Rigidity in the United States during and after the Great Recession

“…The inability to reduce wage rates in one year is less important if employers can make up for it with a lower raise in a subsequent year. In addition, as suggested by Elsby (2009) and Stüber and Beissinger (2012), an employer may provide a smaller raise in one year in anticipation of being unable to lower nominal wage rates in a subsequent year. If so, then the distribution of wage changes over a multiple-year period should be more symmetric than the distribution of wage changes over a single year.…”

Wage rigidity and employment adjustment at the firm level: Evidence from survey data

“…2 Exceptions are the contributions by Lebow et al (2003), Dwyer (2003) and Oyer (2005) who look at the role played by benefits in reducing nominal wage rigidity. They conclude that firms seem to be able to partly circumvent wage rigidity by varying benefits so that total compensation displays less rigidity than do 1 For a discussion, see, among many others, Akerlof et al (1996), Gordon (1996), Mankiw (1996), Dwyer (2003), Fehr and Goette (2005), Carlsson and Westermark (2007), Elsby (2009), Messina and Sanz-de Galdeano (2011) and Stüber and Beissinger (2012).…”