American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data
American Economic Review
vol. 111,
no. 2, February 2021
(pp. 428–71)
Abstract
Using administrative payroll data from the largest US payroll processing company, we measure the extent of nominal wage rigidity in the United States. The data allow us to define a worker's per-period base contract wage separately from other forms of compensation such as overtime premiums and bonuses. We provide evidence that firms use base wages to cyclically adjust the marginal cost of their workers. Nominal base wage declines are much rarer than previously thought with only 2 percent of job-stayers receiving a nominal base wage cut during a given year. Approximately 35 percent of workers receive no base wage change year over year. We document strong evidence of both time and state dependence in nominal base wage adjustments. In addition, we provide evidence that the flexibility of new hire base wages is similar to that of existing workers. Collectively, our results can be used to discipline models of nominal wage rigidity.Citation
Grigsby, John, Erik Hurst, and Ahu Yildirmaz. 2021. "Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data." American Economic Review, 111 (2): 428–71. DOI: 10.1257/aer.20190318Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J31 Wage Level and Structure; Wage Differentials
- J41 Labor Contracts