Why did we think wages are rigid for all those years?

See-Yu Chan, Stephan Hobler and Thijs van Rens
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See-Yu Chan: Department of Economics, University of Mannheim
Stephan Hobler: Department of Economics, The London School of Economics and Political Science.

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The large spike at zero in the distribution of year-to-year nominal wage changes in household surveys is often seen as evidence of nominal wage rigidity. But measurement error—especially from workers rounding their reported wages—can exaggerate this spike. Using U.S. Current Population Survey data, we adjust for potential rounding behavior and find that the zero-change spike falls from 15–20 percent to 7–12 percent, aligning closely with recent estimates from administrative data.

Keywords: Downward nominal wage rigidity; Nominal wage change distribution; Measurement error; Household survey data JEL Codes: E24; E32; J3 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1577

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