Working Paper

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


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.

JEL Classification: J3; E24;

https://doi.org/10.26509/frbc-wp-201602r

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File(s): https://doi.org/10.26509/frbc-wp-201602r
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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2020-03-17

Number: 20160201

Pages: 48

Note: The first version of this paper was published in January 2016

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