Working Paper: NBER ID: w25470
Authors: Ekaterina S. Jardim; Gary Solon; Jacob L. Vigdor
Abstract: For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers’ nominal wage rates cannot be cut. The U.S. evidence on this assumption has been inconclusive because of distortions from reporting error in household surveys. Following a British literature, we reconsider the issue with more accurate wage data from the payroll records of most employers in the State of Washington over the period 2005-2015. For every one of the 40 four-quarters-apart periods for which we observe year-to-year wage changes, we find that at least 20 percent of job stayers experience nominal wage reductions.
Keywords: nominal wage rigidity; payroll records; Washington State; labor market dynamics; employment
JEL Codes: E24; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nominal wage cuts (J38) | Employment stability (J63) |
| Economic downturns (E32) | Frequency of nominal wage cuts (J38) |
| Nominal wage rigidity (J31) | Resistance to nominal wage cuts (J38) |
| Nominal wage freezes (E64) | Reported prevalence in household surveys (C83) |
| Nominal wage reductions (J39) | Job stayers experiencing wage cuts (J31) |