Working Paper: NBER ID: w16130
Authors: Alessandro Barattieri; Susanto Basu; Peter Gottschalk
Abstract: Nominal wage stickiness is an important component of recent medium-scale structural macroeconomic models, but to date there has been little microeconomic evidence supporting the assumption of sluggish nominal wage adjustment. We present evidence on the frequency of nominal wage adjustment using data from the Survey of Income and Program Participation (SIPP) for the period 1996-1999. The SIPP provides high-frequency information on wages, employment and demographic characteristics for a large and representative sample of the US population. \n \nThe main results of the analysis are as follows. 1) After correcting for measurement error, wages appear to be very sticky. In the average quarter, the probability that an individual will experience a nominal wage change is between 5 and 18 percent, depending on the samples and assumptions used. 2) The frequency of wage adjustment does not display significant seasonal patterns. 3) There is little heterogeneity in the frequency of wage adjustment across industries and occupations. 4) The hazard of a nominal wage change first increases and then decreases, with a peak at 12 months. 5) The probability of a wage change is positively correlated with the unemployment rate and with the consumer price inflation rate.
Keywords: sticky wages; nominal wage rigidity; macroeconomic models; wage adjustment
JEL Codes: E24; E32; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nominal wage changes occur discretely (J31) | identification strategy (F55) |
| nominal wages are very sticky (J31) | probability of a wage change in a typical quarter (J39) |
| probability of a wage change in a typical quarter (J39) | expected duration of wage contracts (J31) |
| frequency of wage adjustments does not exhibit significant seasonal patterns (J31) | wage changes are uniformly staggered throughout the year (J31) |
| little heterogeneity in wage adjustment frequencies across industries and occupations (J29) | manufacturing wages tend to be stickier than those in services (J39) |
| hazard of a nominal wage change peaks at 12 months (C41) | aligns with staggered contracting model proposed by Taylor (1980) (J41) |
| higher wage stickiness (J31) | facilitates macroeconomic models in capturing the persistent effects of monetary shocks on real output and prices (E19) |
| probability of a wage change (J31) | positive correlation with macroeconomic variables (E32) |
| macroeconomic variables (E19) | unemployment rate and consumer price inflation rate (E31) |