Downward Nominal Wage Rigidity in the United States: New Evidence From Worker-Firm Linked Data

Abstract

This paper examines the extent and consequences of Downward Nominal Wage Rigidity (DNWR) using administrative worker-firm linked data from the Longitudinal Employer Household Dynamics (LEHD) program for a large representative U.S. state. Prior to the Great Recession, only 7-8% of job stayers are paid the same nominal hourly wage rate as one year earlier -substantially less than previously found in survey-based data -and about 20% of job stayers experience a wage cut. During the Great Recession, the incidence of wage cuts increases to 30%, followed by a large rise in the proportion of wage freezes to 16% as the economy recovers. Total earnings of job stayers exhibit even fewer zero changes and a larger incidence of reductions than hourly wage rates, due to systematic variations in hours worked. The results are consistent with concurrent findings in the literature that reductions in base pay are exceedingly rare but that firms use different forms of nonbase pay and variations in hours worked to flexibilize labor cost. We then exploit the worker-firm link of the LEHD and find that during the Great Recession, firms with indicators of DNWR reduced employment by about 1.2% more per year. This negative effect is driven by significant ly lower hiring rates and persists into the recovery. Our results suggest that despite the relatively large incidence of wage cuts in the aggregate, DNWR has sizable allocative consequences. for their insightful comments and discussions; and many seminar and conference participants for their comments. The views expressed in this paper do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no con dential information is disclosed. Output was released under DRB bypass numbers DRB-0096B-CDAR-06252018 and DRB-B0106-CDAR-20180716. Contact information: kurmann.andre@drexel.edu and erika.mcentarfer@census.gov. Recession shock. See for example Chodorow-Reich (2014) and Giroud and Mueller (2017) on financial frictions; Alfaro and Chen (2012) on ownership; or Aghion et al. (2017) on decentralization.9 See Section 3 for a discussion of this literature. 10 These calculations do not take into account that job movers, which are not distinguished from job stayers in New Keynesian models, have considerably more flexible wages than job stayers.

Asymmetric reference-dependent reciprocity, downward wage rigidity, and the employment contract

“…This prediction is consistent with the empirical evidence reported in Kurmann and McEntarfer (2017), who find that firms that are more constrained by downward wage rigidity employ on average higher productivity employees. Moreover, this result has implications for understanding the effects of wage rigidity on job creation.…”

Employment Adjustment and Part-Time Work: Lessons from the United States and the United Kingdom

“…For Fact 1, the table shows the change in hours per worker in levels ( Δ h s,t ) and the contribution of the part-time employment share ( γ s,t ) to this dynamic during the Great Recession and its aftermath. For Facts 2,3,and 4, the table shows the figures corresponding respectively to Tables 4, 5, and 6 in the text. For Fact 4, the changes in hours refer to employer stayers.…”

“…The average of hours changes is close to one-and-a-half working days, and the distributions exhibit mass points at exact multiples of a full working day. 4 Last, we assess the role played by involuntary part-time work in transitions between full-time and part-time employment, and find that it becomes a predominant driver of the dynamics observed during recessions.…”

“…Moreover, they analyze a shorter time period for only one country (the United States) and do not offer a precise decomposition of the variation in part-time employment, like we do. Finally, a recent working paper byKurmann and McEntarfer (2017) uses firm-level data from the state of Washington of the United States and shows evidence of substantial changes in hours worked among job-stayers during the Great Recession.…”

Inflation and Wage Rigidity/Flexibility in the Short Run

“…Several other papers have also used administrative employer–employee matched data to study the extent and consequences of downward nominal wage rigidity; see, for example, Ehrlich and Montes () for Germany and Kurmann and McEntarfer () for the United States. Caju, Fuss, and Wintr () also used administrative employer–employee matched data to study degrees of downward nominal and real wage rigidity for different categories of workers and firms in Belgium.…”