Wage Adjustment in the Great Recession

59 Pages Posted: 28 Sep 2013

See all articles by Michael Elsby

Michael Elsby

School of Economics, University of Edinburgh

Donggyun Shin

Victoria University of Wellington

Gary Solon

University of Arizona; National Bureau of Economic Research (NBER)

Date Written: September 2013

Abstract

Using 1979-2011 Current Population Survey data for the United States and 1975-2011 New Earnings Survey data for Great Britain, we study wage behavior in both countries, with particular attention to the Great Recession. Real wages are procyclical in both countries, but the procyclicality of real wages varies across recessions, and does so differently between the two countries. U.S. distributions of year-to-year nominal wage change show many workers reporting zero change (suggesting wage stickiness) and many reporting nominal reductions (suggesting wage flexibility), but both findings could be distorted by reporting error. The British data, which are based on employers' payroll records, show much lower prevalence of zero wage change, but still show surprisingly frequent nominal wage cuts. The complex constellation of empirical regularities defies explanation by simple theories.

Suggested Citation

Elsby, Michael and Shin, Donggyun and Solon, Gary, Wage Adjustment in the Great Recession (September 2013). NBER Working Paper No. w19478. Available at SSRN: https://ssrn.com/abstract=2332550

Michael Elsby (Contact Author)

School of Economics, University of Edinburgh ( email )

31 Buccleuch Place
Edinburgh, EH8 9JT
United Kingdom

Donggyun Shin

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

Gary Solon

University of Arizona ( email )

Department of Economics
Eller College of Management
Tucson, AZ 85719
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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