Daly and Hobijn (2015) argue that downward nominal wage rigidity
is an explanation for the lack of movement in the opposite direction of wages and unemployment during the 2007-09 downturn and the subsequent recovery.
The histogram location approach has been proposed by Kahn (1997) to estimate the fraction of wage cuts prevented by downward nominal wage rigidity.
We apply the histogram location approach to estimate the extent of downward nominal wage rigidity across the EU for 1995-2001.
Downward nominal wage rigidity causes the accelerationist property of the Phillips curve to break down at sufficiently low inflation rates.
Instead, consistent with the hypothesis of downward nominal wage rigidity resulting in a failure of inflation to reflect changes in inflationary expectations on a one-for-one basis, the graphs (e.
In short, inflation can grease the wheels of economic adjustment in the labor market by relieving the constraint imposed by downward nominal wage rigidity
, but not if there is also substantial downward real wage rigidity.
The type of money illusion required to generate downward nominal wage rigidity
has received some support from survey evidence in which a large majority of respondents indicated they would prefer a 7 per cent money wage increase when inflation was 12 per cent to a 5 per cent money wage cut when prices were stable.
The interview evidence of wage rigidity is important, especially since the evidence for downward nominal wage rigidity
is underwhelming in panel data.
To the extent that downward nominal wage rigidity
exists, it presumably serves some economic function.
However, if the analysis is cast in an inflationary setting, such a reduction in regional wages against RUK and ROW prices is possible, even with downward nominal wage rigidity
Lebow, Saks, and Wilson examine the extent of downward nominal wage rigidity
using the microdata underlying the Bureau of Labor Statistics's employment cost index.
Widespread use of such pay schemes would overcome the constraints of downward nominal wage rigidity
, allowing lower overall wage changes.