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

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  • Jardim, Ekaterina

    (Amazon)

  • Solon, Gary

    (University of Michigan)

  • Vigdor, Jacob

    (University of Washington)

Abstract

For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers' nominal wage rates cannot be cut. The U.S. evidence on this assumption has been inconclusive because of distortions from reporting error in household surveys. Following a British literature, we reconsider the issue with more accurate wage data from the payroll records of most employers in the State of Washington over the period 2005-2015. For every one of the 40 four-quarters-apart periods for which we observe year-to-year wage changes, we find that at least 20 percent of job stayers experience nominal wage reductions.

Suggested Citation

  • Jardim, Ekaterina & Solon, Gary & Vigdor, Jacob, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? Evidence from Payroll Records in Washington State," IZA Discussion Papers 12124, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12124
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    Cited by:

    1. Effrosyni Adamopoulou & Ernesto Villanueva, 2020. "Wage Determination and the Bite of Collective Contracts in Italy and Spain: Evidence From the Metalworking Industry," CRC TR 224 Discussion Paper Series crctr224_2020_176, University of Bonn and University of Mannheim, Germany.
    2. Daniel Schaefer & Carl Singleton, 2020. "Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data," Economics Discussion Papers em-dp2020-01, Department of Economics, University of Reading.
    3. Michael W. L. Elsby & Gary Solon, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 185-201, Summer.
    4. Osborne Jackson, 2020. "An Approach to Predicting Regional Labor Market Effects of Economic Shocks: The COVID-19 Pandemic in New England," Current Policy Perspectives 88244, Federal Reserve Bank of Boston.
    5. Guyonne Kalb & Jordy Meekes, 2021. "Wage Growth Distribution and Changes over Time: 2001–2018," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(1), pages 76-93, March.
    6. Laszlo Goerke, 2020. "An Efficiency-Wage Model with Habit Concerns about Wages," CESifo Working Paper Series 8428, CESifo.
    7. Guido Matias Cortes & Eliza C. Forsythe, 2020. "Impacts of the Covid-19 Pandemic and the CARES Act on Earnings and Inequality," Upjohn Working Papers and Journal Articles 20-332, W.E. Upjohn Institute for Employment Research.
    8. Charles Ka Yui Leung & Edward Chi Ho Tang, 2021. "The Dynamics of the House Price-to-Income Ratio: Theory and Evidence," ISER Discussion Paper 1125, Institute of Social and Economic Research, Osaka University.
    9. Laszlo Goerke, 2021. "Habit formation and wage determination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 61-76, January.
    10. Gale, William G., 2020. "Raising Revenue with a Progressive Value-Added Tax," MPRA Paper 99197, University Library of Munich, Germany.
    11. Malak Kandoussi & François Langot, 2021. "On the heterogeneous impacts of the COVID-19 lockdown on US unemployment," Working Papers hal-03107369, HAL.

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    More about this item

    Keywords

    nominal wage rigidity; payroll records;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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