Note on Nominal Wage Rigidity and Real Wage Cyclicality

摘要

We discuss the ability of standard estimates of the correlation of wages and211u001eemployment to measure the relative strength of aggregate demand and supply 211u001eshocks, given that the choice of time period, deflator, and explanatory variables 211u001einherently biases the estimated cyclical coefficients toward identifying labor 211u001esupply or demand. We determine that a closer look at the standard wage/labor 211u001ecorrelation shows that it can neither provide information on the relative 211u001estrength of supply and demand shocks, nor give an indication of the response of 211u001ewages to aggregate demand shocks. Following this, we test the predictions of a 211u001eneo-Keynesian model for the correlation of employment and wages using 211u001erestrictions generated by the model to identify movements along or shifts in 211u001elabor demand. Our results are consistent with the theory of nominal wage rigidity 211u001eand we find no reason to reject the neo-Keynesian model based on the correlation 211u001eof wages and employment.