Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data

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. (JEL E24, E32, J31, J41)

A business-cycle model with monopolistically competitive firms and Calvo wages: lessons for Bulgaria (1999–2018)

PurposeThe author augments an otherwise standard business-cycle model with a rich government sector and adds monopolistic competition in the product market and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market.Design/methodology/approachThis specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999–2018), allows the framework to reproduce better observed variability and correlations among model variables and those characterizing the labor market in particular.FindingsAs nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which help the model match data better, as compared to a setup without rigidities.Originality/valueThe computational experiments performed in this paper suggest that wage rigidities are a quantitatively important model ingredient, which should be taken into consideration when analyzing the effects of different policies in Bulgaria, which is a novel result.

Bubbly Recessions

We develop a tractable bubbles model with financial friction and downward wage rigidity. Competitive speculation in risky bubbles can result in excessive investment booms that precede inefficient busts, where post-bubble aggregate economic activities collapse below the pre-bubble trend. Risky bubbles can reduce ex ante social welfare, and leaning-against-the-bubble policies that balance the boom-bust trade-off can be warranted. We further show that the collapse of a bubble can push the economy into a “secular stagnation” equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent recession, such as the Japanese “lost decades.” (JEL E22, E24, E32, E44, L26)

Some Preliminary Evidence of Price Setting Behaviour From the Industrial Estates of Khyber Pakhtunkhwa

Price setting behaviour is a crucial issue for the knowledge of monetary policy transmission mechanism. The objective of the study is to analyze the relationship between firm’s characteristics and the price setting behaviour of firms, using survey-based data. The survey is conducted in the year 2017 in four major industrial estates of Khyber Pakhtunkhwa, namely, Hayatabad, Nowshera, Gadoon and Hattar Industrial Estates. A sample of 342 firms is selected through stratified random sampling and respondents are the managers of the firms. According to results the price elasticity of demand will be inelastic and the number of time to change price decreases in case of less competitors. If the firm is engaged in a contract, then there are more chances that the firms have only regular customers and imperfect competitive market structure. Firms which are involved in input price contracts, they are also involved in output price contracts, so nominal wage rigidity leads to output price rigidity. This paper find that traditional channel of monetary policy is weak as degree of price rigidity is low. Therefore, it is important for monetary policy of Pakistan to focus on other channels of monetary transmission mechanism.