Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data

56 Pages Posted: 13 Mar 2019 Last revised: 20 Aug 2021

See all articles by John Grigsby

John Grigsby

University of Chicago

Erik Hurst

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Ahu Yildirmaz

Automatic Data Processing, Inc. (ADP)

Date Written: March 2019

Abstract

Using administrative payroll data from the largest U.S. payroll processing company, we document a series of new facts about nominal wage adjustments in the United States. The data allow us to define a worker's per-period base contract wage separately from other forms of compensation such as bonuses. We provide evidence that the extent to which base wages adjust is likely the appropriate concept of wage stickiness in many macro models. Nominal base wage declines are much rarer than previously thought with only 2% of job-stayers receiving a nominal base wage cut during a given year. However, accounting for shifts in nominal base wages of job-changers implies that aggregate nominal wages are more flexible than the nominal wages of job-stayers. In addition, we provide evidence that the flexibility of new hire base wages is similar to that of existing workers. Finally, nominal base wage adjustments are state-dependent: downward aggregate nominal wage adjustments were much more common during the Great Recession than in the subsequent recovery period. Throughout, we highlight differences in the adjustment patterns of base wages and of broader wage measures that include bonuses. Collectively, our results can be used to discipline models of nominal wage rigidity.

Suggested Citation

Grigsby, John and Hurst, Erik and Yildirmaz, Ahu, Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data (March 2019). NBER Working Paper No. w25628, Available at SSRN: https://ssrn.com/abstract=3351834

John Grigsby (Contact Author)

University of Chicago ( email )

Erik Hurst

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ahu Yildirmaz

Automatic Data Processing, Inc. (ADP) ( email )

Roseland, NJ
United States

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