The Employment Costs of Downward Nominal-Wage Rigidity
In this paper, we use firm-level wage and employment data to address whether there is evidence of downward nominal-wage rigidity, and whether that rigidity is associated with a reduction in employment. We describe an estimation bias that can result when estimating reduced-form wage and employment equations and suggest a way of controlling for that bias. The adjusted point estimates suggest that nominal-wage rigidity is associated with wages being lower than would have been in the absence of rigidity, rather than higher. Our estimates also suggest that the rigidity tends to be associated with higher rather than lower employment. This conclusion is tempered by the low statistical significance of the estimated coefficients, but our results do suggest the importance of controlling for the bias we identify.
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References listed on IDEAS
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- Seamus Hogan, 1998.
"What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?,"
Canadian Public Policy,
University of Toronto Press, vol. 24(4), pages 513-525, December.
- Seamus Hogan, 1997. "What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?," Staff Working Papers 97-13, Bank of Canada.
- Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-87, November.
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