Effective Downward Nominal Wage Rigidities

Johannes Matschke
Authors registered in the RePEc Author Service: Jun Nie

No RWP 22-10, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: Downward nominal wage rigidity limits the downward adjustment of nominal wages, especially during recessions. Although macroeconomic models suggest that downward wage rigidity exacerbates employment losses and generates asymmetric business cycles when inflation is low, direct empirical evidence for this effect is scarce. This paper estimates effective downward nominal wage rigidities that account for different inflation environments across 53 countries and finds that downward wage rigidities are associated with minimum wage policies and widespread. Further, countries with higher effective downward nominal wage rigidities are subject to more sizable contractions in employment and real GDP per capita during recessions.

Keywords: Wages; Recession; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 E32 J31 (search for similar items in EconPapers)
Pages: 43
Date: 2022-09-02, Revised 2024-07-10
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:94763

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DOI: 10.18651/RWP2022-10

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