Wage Rigidity and Employment Outcomes: Evidence from Administrative Data

Gabriel Ehrlich and Joshua Montes

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 1, 147-206

Abstract: This paper examines the relationship between downward nominal wage rigidity and employment outcomes using linked employer-employee data. Wage rigidity prevents 27.1 percent of counterfactual wage cuts, with a standard deviation of 19.2 percent across establishments. An establishment with the sample-average level of wage rigidity is predicted to have a 3.3 percentage point higher layoff rate, a 7.4 percentage point lower quit rate, and a 2.0 percentage point lower hire rate. Estimating a structural model by indirect inference implies that the cost of a nominal wage cut is 33 percent of an average worker's annual compensation.

JEL-codes: E24 J23 J31 J63 M51 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/mac.20200125

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