Time-dependent or state-dependent wage-setting? Evidence from periods of macroeconomic instability

Sigurðsson, Jósef; Sigurdardottir, Rannveig

doi:10.1016/j.jmoneco.2016.01.001

Cited by 37 publications

(27 citation statements)

References 30 publications

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“…There are also a number of studies that use administrative data for other countries to study wage dynamics; e.g. Nickell and Quintini (2003) and Elsby et al (2016) for the U.K.; Castellano et al (2004) for Mexico; Carneiro et al (2014) for Portugal; Bihan et al (2012) for France; Siggurdsson and Sigurdardottir (2016) for Iceland; Park and Shin (2017) for South Korea; and Ehrlich and Montes (2018) for Germany. Consistent with our results, these studies generally find that the proportion of zero wage changes is state-dependent and substantially smaller than typically found in survey data; and that the incidence of nominal wage cuts is quite high, ranging between 15% and 25%.…”

Section: Introductionmentioning

confidence: 99%

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: Introductionmentioning

confidence: 99%

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

Kurmann

McEntarfer

2018

SSRN Journal

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“…78 An exception is the 1989 reform, which takes effect mid-year. 79 See, e.g., Barattieri et al (2014) for the United States, and Sigurdsson and Sigurdardottir (2016) for Iceland. Finally, the evidence on inside-option rent sharing documents same-year wage effects for incumbent workers.…”

Section: Taxationmentioning

confidence: 99%

“…Estimates of wage stickiness imply that more than half of wage contracts should reset each year(Barattieri et al (2014) for the United States, andSigurdsson and Sigurdardottir (2016) for Iceland) or that incumbent worker's wages are half as sensitive to aggregate shocks as new hires' wage contracts(Pissarides, 2009). Dickens et al (2007) find that wages exhibit lower downward nominal wage rigidity in Austria than in Germany or the United States.…”

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confidence: 99%

Wages and the Value of Nonemployment

et al. 2020

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Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages and, in turn, labor supply and job creation. We measure the effect of changes in the value of nonemployment on wages in existing jobs and among job switchers. Our quasi-experimental variation in nonemployment values arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit levels: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than 0.03. In contrast, a calibrated Nash bargaining model predicts a sensitivity of 0.39 -more than ten times larger. The empirical insensitivity holds even among workers with a priori low bargaining power, with low labor force attachment, with high predicted unemployment duration, among job switchers and recently unemployed workers, in areas of high unemployment, in firms with flexible pay policies, and when considering firm-level bargaining. The insensitivity of wages to the nonemployment value we document presents a puzzle to widely used wage setting protocols, and implies that nonemployment may not constitute workers' relevant threat point. Our evidence supports wage-setting mechanisms that insulate wages from the value of nonemployment. examine the wage pressure channel of UI. 4 Burdett and Mortensen (1998) and Manning (2011) are references for wage posting models. 5 Shimer (2005), Hall and Milgrom (2008), Chodorow-Reich and Karabarbounis (2016) and Hall (2017) discuss the role of the sensitivity of the Nash wage to outside options for employment fluctuations in matching models. 6 We also show that the model makes the same predictions for the sensitivity if treatment and control workers occupy segmented markets. 7 Manning (2011) and Card et al. (2018) review rent sharing estimates. In Appendix D, we translate the reduced-form elasticities into an upper bound for worker bargaining power. 8 Only the 1989 reform has been studied, with a focus on unemployment spell duration (Lalive et al., 2006).2 mandatory registration and because of long unemployment spells. Second, Austrian workers who quit are eligible for benefits -crucial for UI to indeed shift workers' threat points. 9 Third, Austrian UI does not feature experience rating. Fourth, even after UI benefit exhaustion, a significant share of Austrian workers receives means-tested benefits that, while lower in levels, move nearly one-to-one with a worker's previous UIB levels and thus our variation. We first visually analyze each reform nonparametrically by plotting raw data. We sort workers by their UI reference wage, and then plot their wage growth before and after each reform, along with the between-worker reform-induced variation in UI benefit levels. The raw data do not reveal any wage responses even after two years -in stark contrast to the large predicted wage effects from our cal...

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“…The very first papers calibrating the degree of wage rigidity used firmlevel wage agreement data for the United States and Canada (Christofides and Wilton [1983], Taylor [1983], Cecchetti [1987], Christofides [1987]), or Sweden (Fregert and Jonung [1998]) and more recently for France (Avouyi-Dovi et al [2013] and Fougère et al [2018]). On the other hand, a recent growing literature has documented new facts on wage rigidity using administrative sources of wage data (Barattieri et al [2014] or Grigsby et al [2018] for the United States, Le Bihan et al [2012] for France , Sigurdsson and Sigurdardottir [2016] for Iceland or Lunneman and Wintr [2015] for Luxemburg).…”

Section: Introductionmentioning

confidence: 99%

Do Minimum Wages Make Wages More Rigid? Evidence from French Micro Data

2019

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How do minimum wages (MW) shape the aggregate wage dynamics when wage adjustment is lumpy? In this paper, we document new empirical findings on the effect of MW on wage rigidity using quarterly micro wage data matched with sectoral bargained MW. We estimate a micro empirical model of wage rigidity taking into account minimum wage dynamics and we use a simulation method to investigate implications of lumpy micro wage adjustment for the aggregate wage dynamics. Our main findings are the following. Both national and sectoral MW have a large effect on the timing and on the size of wage adjustments. At the aggregate level, MW contribute to amplify, by a factor of 1.7, the response of wages to past inflation. Ignoring MW leads to underestimate the speed of aggregate wage adjustment by about a year. The elasticities of wages with respect to past inflation, the national MW and industry-level MW are respectively 0.42, 0.17 and 0.16. Finally, there are significant spillover effects of the NMW on higher wages transiting through industry-level MW.

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Time-dependent or state-dependent wage-setting? Evidence from periods of macroeconomic instability

Cited by 37 publications

References 30 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

Wages and the Value of Nonemployment

Do Minimum Wages Make Wages More Rigid? Evidence from French Micro Data

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