Board of Governors of the Federal Reserve System

January 2016 (Revised May 2020)

Downward Nominal Wage Rigidity in the United States During and After the Great Recession

Bruce C. Fallick, Michael Lettau, and William L. Wascher

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.
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Keywords: labor markets, wage rigidity

DOI: http://dx.doi.org/10.17016/FEDS.2016.001r1

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