Working Paper Revision

Effective Downward Nominal Wage Rigidities

Abstract: Downward nominal wage rigidity limits the downward adjustment of nominal wages, especially during recessions. Although macroeconomic models suggest that downward wage rigidity exacerbates employment losses and generates asymmetric business cycles when inflation is low, direct empirical evidence for this effect is scarce. This paper estimates effective downward nominal wage rigidities that account for different inflation environments across 53 countries and finds that downward wage rigidities are associated with minimum wage policies and widespread. Further, countries with higher effective downward nominal wage rigidities are subject to more sizable contractions in employment and real GDP per capita during recessions.

JEL Classification: E24; E32; J31;

https://doi.org/10.18651/RWP2022-10

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2024-07-10

Number: RWP 22-10

Related Works

• Working Paper Revision (2024-07-10) : You are here.
• Working Paper Original (2022-09-02) : Downward Wage Rigidities and Recession Dynamics in Advanced and Emerging Economies*