Downward nominal wage rigidity: evidence from the employment cost index

David E. Lebow, Raven E. Saks and Beth Anne Wilson
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David E. Lebow: https://www.federalreserve.gov/econres/david-e-lebow.htm
Beth Anne Wilson: https://www.federalreserve.gov/econres/beth-anne-wilson.htm

No 1999-31, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine the extent of downward nominal wage rigidity using the microdata underlying the BLS employment cost index--an extensive, establishment-based dataset with detailed information on wage and benefit costs. We find stronger evidence of downward nominal wage rigidity than did previous studies using panel data on individuals. Firms appear able to circumvent part, but not all, of this rigidity by varying benefits: Total compensation displays modestly less rigidity than do wages alone. Given our estimated amount of rigidity, a simple model predicts that the disinflation over the 1980s would have raised equilibrium unemployment notably. This prediction stands in contrast to the actual behavior of unemployment over this period: The addition of a term capturing the cost of rigidity (that rises as inflation falls) has no additional explanatory power in a standard Phillips Curve equation.

Keywords: Wages; Employment (Economic theory); Cafeteria benefit plans (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (42)

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