The extent of downward nominal wage rigidity: new evidence from payroll data

Schaefer, D. and Singleton, C. ORCID: https://orcid.org/0000-0001-8247-8830 (2023) The extent of downward nominal wage rigidity: new evidence from payroll data. Review of Economic Dynamics, 51. pp. 60-76. ISSN 1094-2025 doi: 10.1016/j.red.2022.11.006

Abstract/Summary

We use over a decade of representative payroll data from Great Britain to study the nominal wage changes of employees who stayed in the same job for at least one year. We show that basic hourly pay drives the cyclicality of marginal labour costs, making this the most relevant measure of wages for macroeconomic models that incorporate wage rigidity. Basic hourly pay adjusts much less frequently than previously thought in Britain, particularly in small firms. We find that firms compress wage growth when inflation is low, which indicates that downward rigidity constrains firms' wage setting. We demonstrate that the empirical extent of downward nominal wage rigidity (DNWR) can theoretically cause considerable long-run output losses. Combined, our results all point to the importance of including DNWR in macroeconomic and monetary policy models.

Additional Information	This work is based on the Annual Survey of Hours and Earnings Dataset (Crown copyright 2019), having been funded, collected, and deposited by the Office for National Statistics (ONS) under secure access conditions with the UK Data Service (SN:6689). Neither the ONS nor the Data Service bear any responsibility for the analysis and discussion of the results in this paper.
Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/109165
Item Type	Article
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Uncontrolled Keywords	Downward nominal wage rigidity; Unemployment fluctuations; Macroeconomic policy; Marginal labour costs
Additional Information	This work is based on the Annual Survey of Hours and Earnings Dataset (Crown copyright 2019), having been funded, collected, and deposited by the Office for National Statistics (ONS) under secure access conditions with the UK Data Service (SN:6689). Neither the ONS nor the Data Service bear any responsibility for the analysis and discussion of the results in this paper.
Publisher	Elsevier
Download/View statistics	View download statistics for this item