Working Paper: NBER ID: w19478
Authors: Michael W. Elsby; Donggyun Shin; Gary Solon
Abstract: Using 1979-2011 Current Population Survey data for the United States and 1975-2011 New Earnings Survey data for Great Britain, we study wage behavior in both countries, with particular attention to the Great Recession. Real wages are procyclical in both countries, but the procyclicality of real wages varies across recessions, and does so differently between the two countries. U.S. distributions of year-to-year nominal wage change show many workers reporting zero change (suggesting wage stickiness) and many reporting nominal reductions (suggesting wage flexibility), but both findings could be distorted by reporting error. The British data, which are based on employers' payroll records, show much lower prevalence of zero wage change, but still show surprisingly frequent nominal wage cuts. The complex constellation of empirical regularities defies explanation by simple theories.
Keywords: Wage Adjustment; Great Recession; Procyclicality; Wage Stickiness; Labor Markets
JEL Codes: E24; E32; J3; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| real wages in the United States are procyclical (E39) | real wages tend to rise during economic expansions (J39) |
| real wages in the United States are procyclical (E39) | real wages tend to fall during recessions (E24) |
| mean log real wage dropped from 3007 in 2006 to 2993 in 2010 (J31) | reduction of 0.018 (C29) |
| mean log real wage dropped from 3007 in 2006 to 2993 in 2010 (J31) | less affected by the Great Recession compared to earlier economic downturns (F69) |
| milder impact on men's real wages (F66) | indicative of a change in wage dynamics over time (J31) |
| women's wages experienced a relatively larger hit during the same period (J79) | divergence in wage behavior by gender (J31) |
| nominal wage stickiness (J31) | substantial fraction of workers reporting zero wage change (J31) |
| nominal wage rigidity may not have led to extraordinary upsurge in layoffs during the Great Recession (J63) | layoffs were comparable to those in previous severe recessions (J65) |
| nominal wage rigidity (J31) | prolonged duration of unemployment during the Great Recession (J64) |