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  3. American Economic Journal: Macroeconomics
  4. January 2024
  5. Wage Rigidity and Employment Outcomes: Evidence from Administrative Data

Wage Rigidity and Employment Outcomes: Evidence from Administrative Data

  • Gabriel Ehrlich
  • Joshua Montes
American Economic Journal: Macroeconomics
vol. 16, no. 1, January 2024
(pp. 147-206)
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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.20200125

Additional 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
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