Do Sticky Wages Matter? New Evidence from Matched Firm Survey and Register Data
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Date
2022-07
Publication Type
Journal Article
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yes
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Abstract
We study the causal effects of downward nominal wage rigidity after a deflationary monetary policy shock using Swiss data on employee-level contractual wages matched with income and employment from social security register data. We exploit the discontinuity around the origin of the wage growth distribution to compare the outcomes of individuals with wage freezes (treatment group) and small wage cuts (control group) before and after an unexpected decision by the Swiss National Bank leading to a 1% decline of the price level. Locally (that is, near the origin of the wage growth distribution), downward nominal wage rigidities cause a 4.4% decline in income and a 0.7 percentage point increase in the probability of unemployment. In the aggregate, income declines by 0.3% and the probability of unemployment increases by 0.05 percentage points.
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published
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Journal / series
Volume
89 (355)
Pages / Article No.
689 - 712
Publisher
Wiley-Blackwell