Is Downward Nominal Wage Rigidity on the Way Out?
By Bryan Caplan
More than one economist has told me that nominal wage rigidity is getting weaker during this recession. Now some journalists are saying the same thing (HT: Jacob Oost):
More squeezed employers, though, are seeking an alternative to
layoffs. They’re turning to pay freezes, pay reductions and other
cost-cutting options, such as ending their contributions to 401(k) accounts.
of that hurts, but nothing hurts more than losing a job,” said Allen
Sinai, chief global economist at Decision Economics Inc. “It is a
growing trend as companies try to cut costs. Going forward, we will see
more of this, absolutely.”
The Federal Reserve
has taken notice. In a recent survey of economic conditions, it
observed that in some parts of the country, companies were resorting to
“pay freezes or reductions in compensation.”
wide range of employers have followed suit. In some cases, they’re
imposing pay freezes or cuts to avoid immediate layoffs, though
economists say such steps tend to lead to layoffs anyway. In other
cases, employers are cutting or freezing pay and laying off workers.
Is this stuff just anecdotal? Or is there some real data showing that labor markets have changed?