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Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data

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Abstract

TWe use representative payroll data from Great Britain to document novel facts about nominal wage adjustments, focusing on workers who stayed in the same firm and job from one year to the next. The richness of these data allows us to analyse basic pay and the other components of earnings, such as overtime and incentive pay, while accounting for hours worked. Weekly and hourly basic pay show signs of downward nominal rigidity, but non-basic pay components adjust more commonly. Unusually, these payroll-based data also report the wage rates of hourly-paid employees. A quarter of these workers typically see no change in their wage rates from one year to the next in the same job, and very few experience wage cuts. We exploit the employer-employee link in the data and find evidence of state-dependent pay setting, depending on the business cycle and whether firms are shrinking or expanding. Finally, we show that the basic and non-basic wages of new hires and existing employees are similarly flexible.

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  • Daniel Schäfer & Carl Singleton, 2020. "Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data," Economics working papers 2020-11, Department of Economics, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:econwp:2020-11
    Note: English
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    More about this item

    Keywords

    downward nominal wage rigidity; components of pay; hourly pay rates; hiring wages; allocative wages;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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