Testing the Morale Theory of Nominal Wage Rigidity
AbstractThis paper attempts to test the morale theory of nominal wage rigidity by identifying the causal effect of pay cuts on workers' income satisfaction and work morale. This paper uses the current deflationary recession in Japan to estimate this causal effect. Our original survey of Japanese firms and their employees conducted in 2000 revealed that about 17 percent of our sample experienced a nominal, annual income decline. These wage cuts severely decreased income satisfaction and work morale. We consider several channels through which pay cuts deteriorate workers' pay satisfaction and work morale. We found that an income freeze demoralizes workers by reducing workers' trust in their firms, but an income decline decreases work morale even after controlling for this reduction of trust. Allowing for the firm fixed effects does not alter the robust relationship between the income cut and demoralization. Overall, our results consistently indicate the adverse effect of income cuts on workers' pay satisfaction and morale. This evidence, obtained from a deflationary economy, supports Bewley (1999)'s morale theory of nominal wage rigidity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0602.
Date of creation: Apr 2004
Date of revision:
Other versions of this item:
- Daiji Kawaguchi & Fumio Ohtake, 2007. "Testing the Morale Theory of Nominal Wage Rigidity," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 61(1), pages 59-74, October.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Blinder, Alan S & Choi, Don H, 1990.
"A Shred of Evidence on Theories of Wage Stickiness,"
The Quarterly Journal of Economics,
MIT Press, vol. 105(4), pages 1003-15, November.
- Alan S. Blinder & Don H. Choi, 1989. "A Shred of Evidence on Theories of Wage Stickiness," NBER Working Papers 3105, National Bureau of Economic Research, Inc.
- Kanemoto, Yoshitsugu & Bentley MacLeod, W., 1992.
"Firm reputation and self-enforcing labor contracts,"
Journal of the Japanese and International Economies,
Elsevier, vol. 6(2), pages 144-162, June.
- Macleod, W.B. & Kanemoto, Y., 1990. "Firm Reputation and Self-Enforcing Labour Contracts," Cahiers de recherche 9026, Universite de Montreal, Departement de sciences economiques.
- Macleod, W.B. & Kanemoto, Y., 1990. "Firm Reputation And Self-Enforcing Labour Contracts," Cahiers de recherche 9026, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Joseph G. Altonji & Paul J. Devereux, 1999. "The Extent and Consequences of Downward Nominal Wage Rigidity," NBER Working Papers 7236, National Bureau of Economic Research, Inc.
- Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
- Alan Ahearne & Joseph Gagnon & Jane Haltmaier & Steve Kamin ... [et al.]., 2002. "Preventing deflation: lessons from Japan's experience in the 1990s," International Finance Discussion Papers 729, Board of Governors of the Federal Reserve System (U.S.).
- Abe, Naohito & Yamada, Tomoaki, 2009. "Nonlinear income variance profiles and consumption inequality over the life cycle," Journal of the Japanese and International Economies, Elsevier, vol. 23(3), pages 344-366, September.
- repec:cge:warwcg:129 is not listed on IDEAS
- Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, 2009.
"Formación e incrementos de salarios en Colombia: Un estudio microeconómico a partir de una encuesta a nivel de firma,"
BORRADORES DE ECONOMIA
006286, BANCO DE LA REPÚBLICA.
- Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, . "Formación e incrementos de salarios en Colombia: Un estudio microeconómico a partir de una encuesta a nivel de firma," Borradores de Economia 582, Banco de la Republica de Colombia.
- Smith, Jennifer C, 2013.
"Pay Growth, Fairness and Job Satisfaction: Implications for Nominal and Real Wage Rigidity,"
CAGE Online Working Paper Series
130, Competitive Advantage in the Global Economy (CAGE).
- Smith, Jennifer C, 2013. "Pay Growth, Fairness and Job Satisfaction : Implications for Nominal and Real Wage Rigidity," The Warwick Economics Research Paper Series (TWERPS) 1009, University of Warwick, Department of Economics.
- Strawczynski, Michel & Zeira, Joseph, 2009. "Cyclicality of Fiscal Policy: Permanent and Transitory Shocks," CEPR Discussion Papers 7271, C.E.P.R. Discussion Papers.
- Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, 2010. "Incrementos y rigideces de los salarios en Colombia: Un estudio a partir de una encuesta," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO.
- Hiroshi Fujiki & Howard J. Wall, 2006. "Controlling for geographic dispersion when estimating the Japanese Phillips curve," Working Papers 2006-057, Federal Reserve Bank of St. Louis.
- Sasaki, Masaru & Ohtake, Fumio, 2013. "Corporate Sports Activity and Work Morale: Evidence from a Japanese Automobile Maker," IZA Discussion Papers 7836, Institute for the Study of Labor (IZA).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fumiko Matsumoto).
If references are entirely missing, you can add them using this form.