Nominal Wage Rigidity and Real Wage Cyclicality
17 Pages Posted: 24 Sep 1998
Date Written: April 29, 1998
Abstract
We discuss the ability of standard estimates of the correlation of wages and employment to measure the relative strength of aggregate demand and supply shocks, given that the choice of time period, deflator, and explanatory variables inherently biases the estimated cyclical coefficients toward identifying labor supply or demand. We determine that a closer look at the standard wage/labor correlation shows that it can neither provide information on the relative strength of supply and demand shocks, nor give an indication of the response of wages to aggregate demand shocks. Following this, we test the predictions of a neo-Keynesian model for the correlation of employment and wages using restrictions generated by the model to identify movements along or shifts in labor demand. Our results are consistent with the theory of nominal wage rigidity and we find no reason to reject the neo-Keynesian model based on the correlation of wages and employment.
JEL Classification: E24, J30
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Power of Suggestion: Inertia in 401(K) Participation and Savings Behavior
-
The Power of Suggestion: Inertia in 401(K) Participation and Savings Behavior
-
The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers
By Patrick J. Bayer, B. Douglas Bernheim, ...
-
The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers
By Patrick J. Bayer, B. Douglas Bernheim, ...
-
By Esther Duflo and Emmanuel Saez
-
By Esther Duflo and Emmanuel Saez
-
For Better or for Worse: Default Effects and 401(K) Savings Behavior
By James J. Choi, David Laibson, ...
-
The Illusory Effects of Saving Incentives on Saving
By William G. Gale, Eric M. Engen, ...