Full Citation
Title: Downward Nominal Wage Rigidity in the United States
Citation Type: Miscellaneous
Publication Year: 2019
ISBN:
ISSN:
DOI:
NSFID:
PMCID:
PMID:
Abstract: This paper constructs distributions of individual workers' year-over-year changes in nominal hourly wages across time and across US states from two nationally representative household surveys, the Current Population Survey (1979-2017) and the Survey of Income and Program Participation (1984-2013). The novel result is that the share of workers with no wage changes, which accounts for the large spike at zero in the wage change distribution, is more countercyclical than the share of workers with wage cuts. A strand of related literature interpreted the empirical finding that US states with larger decreases in employment are also the states with lower average wage increases as a sign of wage flexibility. This paper overturns this interpretation by showing that the states with larger employment declines are also the states with greater increases in the share of workers with a zero wage change, suggesting wage rigidity instead. The paper then analyzes heterogeneous agent models with five alternative wage-setting schemes-perfectly flexible, Calvo, long-term contracts, menu costs, and downward nominal wage rigidity-and shows that only the model with downward nominal wage rigidity is consistent with the empirical findings regarding the shape and cyclicality of the wage change distribution documented in this paper.
User Submitted?: No
Authors: Jo, Yoon J
Publisher: Columbia University
Data Collections: IPUMS CPS
Topics: Labor Force and Occupational Structure, Other
Countries: