Keywords: Nominal wage rigidity
Abstract: This paper tests for nominal salary rigidity using panel data from
two large service-sector firms. Distributions of the firms' salary changes exhibit
nominal rigidity: few nominal pay cuts, a pile-up of observations at zero, and
positive skewness and asymmetry. In addition, these characteristics become more
pronounced in periods of low inflation. These results are much stronger
than those found in the previous literature. Further analysis shows that the sizable
measurement error in the PSID and the fact that establishment surveys typically
follow average wages within jobs may bias the results in the previous literature
toward rejecting downward nominal wage rigidity.
Full paper (1956 KB PDF)
| Full paper (838 KB Postscript)
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Last update: May 17, 1999