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A deep recession came with deep wage cuts

Katrin Olafsdottir ()

Economics Letters, 2020, vol. 189, issue C

Abstract: While economists historically have considered wages rigid downwards, recent studies have shown that cuts in nominal wages are more common than previously thought. The deep recession experienced in Iceland in 2008, coupled with Iceland’s flexible labor market provided an extreme example of a labor market that experienced widespread and deep cuts in nominal wages. Data covering two-fifths of the labor market showed that 80% of employees experienced a nominal cut in regular hourly wages between 2008 and 2010. The data was collected directly from organizations, and excluded the effects of a change in hours worked. Nominal hourly wages for full time work were cut by 9.3% on average, at the same time inflation measured 18%.

Keywords: Nominal wage cuts; Recession; Iceland (search for similar items in EconPapers)
JEL-codes: D31 J11 J31 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econlet.2020.109056

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