Doeswagerigidityreallyexist.PDFVIP

Does wage rigidity really exist? New evidence from US panel data CAWM-Discussion Paper No 13 February 2009 by Korbinian von Blanckenburg Alexander Geist Jörg Schmidt Abstract Downward nominal wage rigidity (DNWR) could prevent real wage adjustments in times of low inflation rates. Nominal wage rigidity based on annual wages can at least be reduced, if the number of working hours is considered. This leads to a lower degree of DNWR in hourly wage changes. In this paper, we use a histogram-location approach to investigate to what extent annual as well as hourly wages are subject to downward nominal wage rigidity. Using data from the Panel Study of Income Dynamics (PSID) we find that annual wage changes exhibit a substantially higher level of wage rigidity than hourly wage changes which also holds for males compared to females.   Keywords Wage Rigidity, Histogram-Location Approach JEL Classification E24, J30, J31. K. v. Blanckenburg and A. Geist Institute of Public Economics, Muenster University, Wilmergasse 6-8, 48143 Muenster, Germany e-mail: korbinian@vonblanckenburg.de J. Schmidt Cologne Institute for Economic Research, Cologne Gustav-Heinemann-Ufer 84-88, 50968 Cologne, Germany 1. Introduction Downward nominal wage rigidity (DNWR) and low inflation rates can prevent real wage adjustments which are essential for the efficient functioning of labour markets. Since being established primarily by Tobin (1972), this notion was supported by a study of Akerlof et al. (1996), who showed a substantial impact of downward nominal wage rigidity on the long-run u