How Prevalent is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips

23 Pages Posted: 26 Dec 2018

See all articles by Michael Elsby

Michael Elsby

School of Economics, University of Edinburgh

Gary Solon

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

Date Written: December 2018

Abstract

For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers’ nominal wage rates cannot be cut. Contrary evidence from household surveys reasonably has been discounted on the ground that the measurement of frequent wage cuts might be an artifact of reporting error. This article summarizes a more recent wave of studies based on more accurate wage data from payroll records and pay slips. By and large, these studies indicate that, except in extreme circumstances (when nominal wage cuts are either legally prohibited or rendered beside the point by very high inflation), nominal wage cuts from one year to the next appear quite common, typically affecting 15-25 percent of job stayers in periods of low inflation.

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Suggested Citation

Elsby, Michael and Solon, Gary, How Prevalent is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips (December 2018). NBER Working Paper No. w25393. Available at SSRN: https://ssrn.com/abstract=3306103

Michael Elsby (Contact Author)

School of Economics, University of Edinburgh ( email )

31 Buccleuch Place
Edinburgh, EH8 9JT
United Kingdom

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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