The extent of downward nominal wage rigidity: New evidence from payroll data



Schaefer D & Singleton C (2023) The extent of downward nominal wage rigidity: New evidence from payroll data. Review of Economic Dynamics, 51, pp. 60-76.

We use over a decade of representative payroll data from Great Britain to study the nominal wage changes of employees who stayed in the same job for at least one year. We show that basic hourly pay drives the cyclicality of marginal labour costs, making this the most relevant measure of wages for macroeconomic models that incorporate wage rigidity. Basic hourly pay adjusts much less frequently than previously thought in Britain, particularly in small firms. We find that firms compress wage growth when inflation is low, which indicates that downward rigidity constrains firms' wage setting. We demonstrate that the empirical extent of downward nominal wage rigidity (DNWR) can theoretically cause considerable long-run output losses. Combined, our results all point to the importance of including DNWR in macroeconomic and monetary policy models.

Downward nominal wage rigidity; Unemployment fluctuations; Macroeconomic policy; Marginal labour costs

Review of Economic Dynamics: Volume 51

FundersEconomic and Social Research Council
Publication date31/12/2023
Publication date online31/12/2023
Date accepted by journal28/11/2022
PublisherElsevier BV

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Dr Carl Singleton

Dr Carl Singleton

Senior Lecturer in Economics, Economics