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

Abstract

Rigidity in wages has long been thought to impede the functioning of labor markets. In this paper, we investigate the extent of downward nominal wage rigidity in US labor markets using job-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics. We use several distinct methods to test for downward nominal wage rigidity and to assess whether such rigidity is less or more severe in the presence of negative economic shocks than in more normal economic times. We find a significant amount of downward nominal wage rigidity in the United States and no evidence that the high degree of labor market distress during the Great Recession reduced downward nominal wage rigidity. We further find a lower degree of nominal rigidity at multi-year horizons.

Unemployment Insurance, Starting Salaries, and Jobs

“…Interestingly, panel (a) makes clear that relative wages are falling in North Carolina not because the posted wages are falling, but rather because they are failing to keep up with rising wages at other establishments within the firm as the economy continues to recover from the Great Recession. This provides additional evidence in support of the existence of downward nominal wage rigidity, as in Hazell and Taska (2020) and (Fallick et al 2020). Moreover, we find a smaller and slightly delayed decrease in the posted wages for establishments residing in the 6 moderate reform states in panel (c).…”

Downward Nominal Wage Rigidity Meets the Zero Lower Bound

“…At the same time, however, other studies continue to find significant DNWR in the U.S. labor market by looking at a variety of data sets, such as the Survey of Income and Program Participation Barattieri, Basu, and Gottschalk (2014), the Current Population Survey and the Survey of Income and Program Participation Jo (2019), and establishment‐level data collected by the Bureau of Labor Statistics Fallick, Lettau, and Wascher (2016).…”

It’s Baaack: The Surge in Inflation in the 2020s and the Return of the Non-Linear Phillips Curve

“…For the earlier period we use the Livingston inflation expectations survey; since this survey is conducted only twice yearly, we interpolate it to obtain quarterly observations. 22 Figure 17 in the Appendix shows this data.…”

“…21 In their estimates, they use Treasury yields, inflation data, inflation swaps, and survey-based measures of inflation expectations. 22 The 12-month CPI forecast of the Livingston Survey better represents a 14-month forecast (see Carlson, 1977). workers.…”

“…This completes the description of the model. An equilibrium is defined by a collection of stochastic processes for {i t , X t , Π t , Y t , F t , θ t , N t , U t , w t , w norm t , w f lex t } ∞ t=0 that satisfy (6), ( 8), ( 10), ( 11), ( 12), ( 15), ( 18), ( 20), ( 21), (22), and (23) given an exogenous process for {A t , G t ,…”