American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Wage Rigidity and Employment Outcomes: Evidence from Administrative Data
American Economic Journal: Macroeconomics
(pp. 147–206)
Abstract
This paper examines the relationship between downward nominal wage rigidity and employment outcomes using linked employer-employee data. Wage rigidity prevents 27.1 percent of counterfactual wage cuts, with a standard deviation of 19.2 percent across establishments. An establishment with the sample-average level of wage rigidity is predicted to have a 3.3 percentage point higher layoff rate, a 7.4 percentage point lower quit rate, and a 2.0 percentage point lower hire rate. Estimating a structural model by indirect inference implies that the cost of a nominal wage cut is 33 percent of an average worker's annual compensation.Citation
Ehrlich, Gabriel, and Joshua Montes. 2024. "Wage Rigidity and Employment Outcomes: Evidence from Administrative Data." American Economic Journal: Macroeconomics 16 (1): 147–206. DOI: 10.1257/mac.20200125Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials
- J63 Labor Turnover; Vacancies; Layoffs
- M51 Personnel Economics: Firm Employment Decisions; Promotions