Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index

摘要

The document examines the extent of downward nominal wage rigidity using the211u001emicrodata underlying the BLS's employment cost index--an extensive, establishment-211u001ebased dataset with detailed information on wage and benefit costs. There is 211u001estronger evidence of downward nominal wage rigidity than shown in previous 211u001estudies using panel data on individuals. Firms appear able to circumvent part, 211u001ebut not all, of this rigidity by varying benefits: Total compensation displays 211u001emodestly less rigidity than do wages alone. Given the estimated amount of 211u001erigidity, a simple model predicts that the disinflation over the 1980s should 211u001ehave raised equilibrium unemployment notably. This prediction stands in contrast 211u001eto the actual behavior of unemployment over this period: The addition of a term 211u001ecapturing the cost of rigidity (that rises as inflation falls) has no additional 211u001eexplanatory power in a standard Phillips Curve equation.