Working Paper: NBER ID: w25628
Authors: John Grigsby; Erik Hurst; Ahu Yildirmaz
Abstract: Using administrative payroll data from the largest U.S. payroll processing company, we document a series of new facts about nominal wage adjustments in the United States. The data allow us to define a worker's per-period base contract wage separately from other forms of compensation such as bonuses. We provide evidence that the extent to which base wages adjust is likely the appropriate concept of wage stickiness in many macro models. Nominal base wage declines are much rarer than previously thought with only 2% of job-stayers receiving a nominal base wage cut during a given year. However, accounting for shifts in nominal base wages of job-changers implies that aggregate nominal wages are more flexible than the nominal wages of job-stayers. In addition, we provide evidence that the flexibility of new hire base wages is similar to that of existing workers. Finally, nominal base wage adjustments are state-dependent: downward aggregate nominal wage adjustments were much more common during the Great Recession than in the subsequent recovery period. Throughout, we highlight differences in the adjustment patterns of base wages and of broader wage measures that include bonuses. Collectively, our results can be used to discipline models of nominal wage rigidity.
Keywords: Nominal Wage Adjustments; Payroll Data; Wage Rigidity; Labor Economics
JEL Codes: E24; J3; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nominal base wage declines are exceedingly rare (J39) | Strong rigidity in base wages (J31) |
| Job changers experience a higher degree of wage flexibility (J62) | Aggregate economy exhibits greater flexibility than job stayer sample alone (E24) |
| Nominal base wage adjustments are state-dependent (J39) | Downward wage adjustments were more common during the Great Recession (J39) |
| Patterns of wage adjustments differ significantly between base wages and broader wage measures (J31) | Base wages show much higher persistence (J31) |