How Prevalent Is Downward Rigidity in Nominal Wages? Evidence from Payroll Records in Washington State

Jardim, Ekaterina; Solon, Gary; Vigdor, Jacob L.

doi:10.3386/w25470

Cited by 27 publications

(31 citation statements)

References 15 publications

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“…12 The longer sample is crucial to document large time variations in the wage change distribution since the Great Recession and to test for allocative consequences of DNWR. Another paper that has recently started using Washington data is Jardim et al (2018). 13 Their analysis confirms our basic results on the wage change distribution, which is useful given the confidential nature of the LEHD data.…”

Section: Introductionsupporting

confidence: 57%

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

Kurmann

McEntarfer

2018

SSRN Journal

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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.

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Section: Introductionsupporting

confidence: 57%

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

Kurmann

McEntarfer

2018

SSRN Journal

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“…Two research teams - Kurmann and McEntarfer (2017) and Jardim, Solon, and Vigdor (2018) -have used the Washington data to study job stayers' year-to-year changes in quarterly average hourly earnings, and both have obtained results similar to those in the British studies.…”

Section: United Statesmentioning

confidence: 85%

How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips

Elsby

Solon

2019

Journal of Economic Perspectives

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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 grounds 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.

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“…Wage rigidities are often used to explain this mild response of wage growth to tight labor market conditions, depicted as a flattening of the wage Phillips curve (see Daly and Hobijn (2014)). However, recent empirical evidence has shown that downward nominal wage rigidities are not as binding as we initially thought (see Jardim et al (2019) and Elsby and Solon (2018)).…”

Section: Introductionmentioning

confidence: 74%

Oligopsonies over the Business Cycle

Monte¹,

Pinheiro

2020

SSRN Journal

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With a duopsony model, we show how the degree of labor market slack relates to earnings inequality and firm size distribution across local labor markets and the business cycle. In booms, due to the high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving in or out of a recession, there is an "accommodation" phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We show that the impact of economic shocks on wage dispersion and inequality may vary not only due to the nature of the shock, but also based on which equilibrium the economy may have settled in.

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How Prevalent Is Downward Rigidity in Nominal Wages? Evidence from Payroll Records in Washington State

Cited by 27 publications

References 15 publications

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

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

How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips

Oligopsonies over the Business Cycle

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