Downward Nominal Wage Rigidity in the United States during and after the Great Recession

48 Pages Posted: 30 Mar 2020

See all articles by Bruce Fallick

Bruce Fallick

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Daniel Villar Vallenas

Board of Governors of the Federal Reserve System

William Wascher

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: March 17, 2020

Abstract

Rigidity in wages has long been thought to impede the functioning of labor markets. In this paper, we investigate the extent of downward nominal wage rigidity in US labor markets using job-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics. We use several distinct methods to test for downward nominal wage rigidity and to assess whether such rigidity is less or more severe in the presence of negative economic shocks than in more normal economic times. We find a significant amount of downward nominal wage rigidity in the United States and no evidence that the high degree of labor market distress during the Great Recession reduced downward nominal wage rigidity. We further find a lower degree of nominal rigidity at multi-year horizons.

Keywords: wage rigidity

JEL Classification: J3, E24

Suggested Citation

Fallick, Bruce and Villar Vallenas, Daniel and Wascher, William, Downward Nominal Wage Rigidity in the United States during and after the Great Recession (March 17, 2020). FRB of Cleveland Working Paper No. 16-02R, Available at SSRN: https://ssrn.com/abstract=3562567 or http://dx.doi.org/10.2139/ssrn.3562567

Bruce Fallick (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

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Daniel Villar Vallenas

Board of Governors of the Federal Reserve System ( email )

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William Wascher

Board of Governors of the Federal Reserve System ( email )

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