The Employment Costs of Downward Nominal-Wage Rigidity

Jean Farès and Seamus Hogan

Staff Working Papers from Bank of Canada

Abstract: In this paper, we use firm-level wage and employment data to address whether there is evidence of downward nominal-wage rigidity, and whether that rigidity is associated with a reduction in employment. We describe an estimation bias that can result when estimating reduced-form wage and employment equations and suggest a way of controlling for that bias. The adjusted point estimates suggest that nominal-wage rigidity is associated with wages being lower than would have been in the absence of rigidity, rather than higher. Our estimates also suggest that the rigidity tends to be associated with higher rather than lower employment. This conclusion is tempered by the low statistical significance of the estimated coefficients, but our results do suggest the importance of controlling for the bias we identify.

Keywords: LABOUR; MARKETS (search for similar items in EconPapers)
JEL-codes: C33 J23 J31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2000
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:00-1

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