Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index

Abstract

We examine the extent of downward nominal wage rigidity using the microdata underlying the BLS employment cost index--an extensive, establishment-based dataset with detailed information on wage and benefit costs. We find stronger evidence of downward nominal wage rigidity than did previous studies using panel data on individuals. Firms appear able to circumvent part, but not all, of this rigidity by varying benefits: Total compensation displays modestly less rigidity than do wages alone. Given our estimated amount of rigidity, a simple model predicts that the disinflation over the 1980s would have raised equilibrium unemployment notably. This prediction stands in contrast to the actual behavior of unemployment over this period: The addition of a term capturing the cost of rigidity (that rises as inflation falls) has no additional explanatory power in a standard Phillips Curve equation.

Nominal Wage Rigidity and the Rate of Inflation

“…In the US, it is certainly the case that a significant group of workers, notably in the union sector, have longer term contracts. It is also the case that Lebow et al (1999) find that the proportion of nominal cuts rises significantly, and the proportion with rigid wages falls significantly, once total compensation is accounted for rather than simply wages and salaries. However, we do not have a complete explanation of these sharp differences between the UK and the US and we leave this issue unresolved.…”

Always Poor or Never Poor and Nothing in Between? Duration of Child Poverty in Germany

“… 3. See for example the evidence provided by Lebow et al . (1995) using an asymmetry measure based on the median for the PSID. …”

How Rigid are Nominal Wages? Evidence and Implications for Germany*

“…2 2 Additional econometric analyses of US, Canadian and UK micro data using first‐wave approaches include Lebow, Stockton and Washer (1995), McLaughlin (1999), Lebow, Saks and Wilson (1999), Christofides and Leung (2000), McLaughlin (2000), Christofides and Stengos (2001) and Nickell and Quintini (2001). …”