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

24 Pages Posted: 21 May 2019

See all articles by Michael Elsby

Michael Elsby

University of Edinburgh

Gary Solon

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

Date Written: January 2019

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.

Keywords: nominal wage rigidity, payroll records

JEL Classification: J3, E24

Suggested Citation

Elsby, Michael and Solon, Gary, How Prevalent is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips (January 2019). IZA Discussion Paper No. 12125. Available at SSRN: https://ssrn.com/abstract=3390112

Michael Elsby (Contact Author)

University of Edinburgh

Old College
South Bridge
Edinburgh, EH8 9JY
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

Register to save articles to
your library

Register

Paper statistics

Downloads
4
Abstract Views
23
PlumX Metrics