RWP 22-10, September 2022; updated July 2024
Downward nominal wage rigidity limits the downward adjustment of nominal wages, especially during recessions. Although macroeconomic models suggest that downward wage rigidity exacerbates employment losses and generates asymmetric business cycles when inflation is low, direct empirical evidence for this effect is scarce. This paper estimates effective downward nominal wage rigidities that account for different inflation environments across 53 countries and finds that downward wage rigidities are associated with minimum wage policies and widespread. Further, countries with higher effective downward nominal wage rigidities are subject to more sizable contractions in employment and real GDP per capita during recessions.
JEL classifications: E24, E32, J31
Article Citation
Matschke, Johannes 2022. “Effective Downward Nominal Wage Rigidities.” Federal Reserve Bank of Kansas City, Research Working Paper no. 22-10, September. Available at External Linkhttps://doi.org/10.18651/RWP2022-10