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The extent and consequences of downward nominal wage rigidity
Author(s)
Date Issued
2000
Date Available
2008-07-09T13:45:54Z
Abstract
Using the Panel Study of Income Dynamics, we find that true wage changes have many fewer nominal cuts and more nominal freezes than reported nominal wage changes. The data overwhelmingly rejects a model of flexible wage changes and provides some evidence against a model of perfect downward rigidity in favor of a more general model. The more general model incorporates downward rigidity but specifies that nominal wage cuts may occur when large cuts would occur in the absence of wage rigidity. However, the results of the general model imply that nominal wage cuts are rare. We also analyze the personnel files of a large corporation and find cuts in base pay are rare and almost always associated with changes in full time status or a switch between compensation schemes involving incentives. Our evidence on the consequences of nominal wage rigidity is mixed. We find modest support for the hypothesis that workers who are overpaid because of nominal wage rigidity are less likely to quit.
Type of Material
Journal Article
Publisher
Emerald Insight
Journal
Research in Labor Economics
Volume
19
Start Page
383
End Page
431
Copyright (Published Version)
Elsevier 2000
Classification
E24
E31
J3
Subject – LCSH
Wages
Employee retention
Web versions
Language
English
Status of Item
Peer reviewed
ISBN
0762313471
This item is made available under a Creative Commons License
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