Working Paper: CEPR ID: DP17018
Authors: Jason Lennard
Abstract: How sticky were wages during the Great Depression? Although classic accounts emphasize the importance of nominal rigidity in amplifying deflationary shocks, the evidence is limited. In this paper, I calculate the degree of nominal wage rigidity in the United Kingdom between the wars using new granular data covering millions of wages. I find that nominal wages were more flexible downwards than in most modern economies, but that the frequency and magnitude of wage cuts were too low to fully offset deflation.
Keywords: Great Depression; Interwar Britain; Nominal Rigidity
JEL Codes: E30; N14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nominal wage rigidity (J31) | unemployment (J64) |
| nominal wage rigidity (J31) | real wage changes (J31) |
| economic downturns (F44) | frequency of wage cuts (J38) |
| minimum wage legislation (J38) | wage stickiness (J31) |
| threat of strikes (J52) | reluctance to cut wages (J38) |
| nominal wage rigidity (J31) | insufficient wage cuts (J38) |
| nominal wage rigidity (J31) | deflationary pressures (E31) |