Downward nominal wage rigidity in Canada: Evidence from micro‐level data

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in www.econstor.euBank of Canada staff working papers provide a forum for staff to publish work-in-progress research independently from the Bank's Governing Council. This research may support or challenge prevailing policy orthodoxy. Therefore, the views expressed in this paper are solely those of the authors and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank. The views expressed in this paper are those of the authors and not necessarily those of the Bank of Canada.ii AbstractWe assess the importance of downward nominal wage rigidity (DNWR) in Canada using both firm-and worker-level microdata. In particular, we analyze employer-level administrative data from the Major Wage Settlements (MWS) and household-based survey data from the Survey of Labour Income Dynamics (SLID). MWS data cover large unionized firms in Canada, while SLID is a rich rotating panel representative of the employed population in Canada. Combining both sources of information allows for a more extensive analysis of DNWR in the Canadian labour market. The results suggest that, on average, the effects of DNWR added about 0.2 to 0.4 percentage points to wage growth between 1994 and 2011; as well, the estimated effects increased in the years following the Great Recession in 2008-09. That includes a higher proportion of workers affected by DNWR (which rose from 16 to 32 per cent) and a larger impact on average wage growth. DNWR's effects on average wage growth were also much stronger during periods of lower CPI inflation in Canada and are positively related to provincial unemployment rates. Finally, we provide an extensive analysis of the heterogeneity in the effects of DNWR. For example, its impact is more pronounced among smaller firms, lower occupational levels, immigrants and older workers. Overall, population ageing and an increasing proportion of immigrants may continue to increase the effects of DNWR in Canada, while the continuing shift toward service industries, declining unionization rates and the increasing educational attainment of the Canadian population may reduce them. Bank topic(s): Labour markets; Econometric and statistical methods JEL code(s): J3, E24, J30

Downward nominal wage rigidity in Canada: Evidence against a “greasing effect”

“…With 100(1− λ 4 )% of workers able to reduce wages annually, a value for λ of 0.95 is consistent with Brouillette et al. 's () observation that approximately 20% of workers experience a wage cut each year using SLID data from 1994 to 2011. In addition, as we will see in the following section, when λ is set to 0.95, approximately 70% of the workforce is bound by DNWR in steady state each quarter (24% annually).…”

“…Therefore, the distribution of wage growth data should be asymmetric with a majority of wage changes being non-negative and a pronounced spike at zero. Brouillette et al (2016) assess the importance of DNWR in Canada by evaluating the distribution of wage growth data collected from the Survey of Labour and Income Dynamics (SLID) from 1994 to 2011. This self-reporting survey follows individuals for six years, and collects information on, amongst other things, income and job status.…”

“…Calculations for the United States come from Daly and Hobijn (2014). Brouillette et al (2016) focus on the portion of the labour force between 16 and 69 years old who were not self-employed, unemployed or unpaid workers. Looking at those surveyed who remained in their current job for 24 months, they calculate wage growth by assessing the hourly wage change from January to December.…”

“…Thus, Brouillette et al. () conclude that DNWR is prevalent in Canada's labour market and that the number of people bound by DNWR increased during the Great Recession. Furthermore, their estimates for the number of workers experiencing wage freezes both before and during the Great Recession are substantially higher than Daly and Hobijn's () estimates of 12% and 16%, respectively, for the United States.…”

Self-Employment Dynamics of Immigrants and Natives: Individual-level Analysis for the Canadian Labour Market

“…Are there any significant explanatory variables affecting people's propensity to be self-employed (rather than to be paid-employed, unemployed, or out of the labour force), or is it primarily the product of some unobserved heterogeneity factors, each individual's background, their history of self-employment, or inertia? Lin, et al [12] analysed the effect of individual characteristics (labour market experience and macroeconomic conditions) on the probability of moving into or out of self-employment for the Canadian labour market. Their results show that there is a significant impact of these attributes to labour market dynamics.…”