Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data

John Grigsby, Erik Hurst, Ahu Yildirmaz

Research output: Contribution to journalArticlepeer-review

41 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)428-471
Number of pages44
JournalAmerican Economic Review
Volume111
Issue number2
DOIs
StatePublished - Feb 2021
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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