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Why did we think wages are rigid for all those years?

Author

Listed:
  • Chan, See-Yu

    (Department of Economics, University of Mannheim)

  • Hobler, Stephan

    (Department of Economics, The London School of Economics and Political Science.)

  • Van Rens, Thijs

    (Department of Economics, University of Warwick.)

Abstract

The large spike at zero in the distribution of year-to-year nominal wage changes in household surveys is often seen as evidence of nominal wage rigidity. But measurement error—especially from workers rounding their reported wages—can exaggerate this spike. Using U.S. Current Population Survey data, we adjust for potential rounding behavior and find that the zero-change spike falls from 15–20 percent to 7–12 percent, aligning closely with recent estimates from administrative data.

Suggested Citation

  • Chan, See-Yu & Hobler, Stephan & Van Rens, Thijs, 2025. "Why did we think wages are rigid for all those years?," The Warwick Economics Research Paper Series (TWERPS) 1577, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1577
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2025/twerp_1577-_van_rens.pdf
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    References listed on IDEAS

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    Keywords

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    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
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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