Pay cuts and morale: a test of downward nominal rigidity

Jennifer C. Smith

No 269462, Economic Research Papers from University of Warwick - Department of Economics

Abstract: This paper tests the ‘morale’ theory of downward nominal wage rigidity. This theory relies on workers disliking nominal pay cuts: cuts should make workers less happy. We investigate this using panel data on individual employees’ pay and satisfaction. We con…rm that nominal cuts do make workers less happy than if their pay had not fallen. But we …nd no di¤erence in the e¤ect on happiness of cuts and pay freezes. This represents important information about the nature of wage rigidity in practice and the applicability of the morale theory. The morale theory may be able to explain generalised downward wage rigidity, but apparently fails to explain downward nominal rigidity.

Keywords: Financial Economics; Labor and Human Capital (search for similar items in EconPapers)
Pages: 22
Date: 2002-09-09
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269462

DOI: 10.22004/ag.econ.269462

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