Sticky Wages on the Layoff Margin

Steven Davis and Pawel Krolikowski

American Economic Review, 2025, vol. 115, issue 2, 491-524

Abstract: We design and field an innovative survey of unemployment insurance (UI) recipients that yields new insights about wage stickiness on the layoff margin. A majority of UI recipients would accept pay cuts of 5–10 percent to save their jobs, and one-third would accept a 25 percent cut. Yet worker-employer discussions about cuts in pay, benefits, or hours in lieu of layoffs are exceedingly rare. Roughly one-quarter of the layoffs in our sample violate the theoretical condition for bilaterally efficient separations. We draw on our findings and other evidence to assess theories of wage stickiness and its role in layoffs.

JEL-codes: C83 E24 J31 J63 J65 (search for similar items in EconPapers)
Date: 2025
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Sticky Wages on the Layoff Margin (2023)
Working Paper: Sticky Wages on the Layoff Margin (2023)
Working Paper: Sticky Wages on the Layoff Margin (2023)
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DOI: 10.1257/aer.20240309

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