Downward Nominal-Wage Flexibility: Real or Measurement Error?

By P. Gottschalk. Review of Economics and Statistics, 2005

166 citations recorded by the source corpus.

This paper presents a new method to correct for measurement error in wage data and applies this method to address an old question: How much downward wage flexibility is there in the United States? We apply standard methods developed by Bai and Perron to identify structural breaks in time series data. Applying these methods to wage histories allows us to identify when each person experiences a change in nominal wages. The length of the period of constant nominal wages is left unrestricted and is allowed to differ across individuals, as are the size and direction of the nominal-wage change. We apply these methods to data from the Survey of Income and Program Participation. The evidence we provide indicates that the probability of a cut in nominal wages is substantially overstated in data that are not corrected for measurement error.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f7e7a4bba221e823209b8bb70c6e22d212019a59

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Citations in the corpus

The Incidence of Nominal and Real Wage Rigidity: An Individual-Based Sectoral Approach (2010, unknown): “This assumption, that all autocorrelation in wage changes is due to measurement error, has been extensively verified using data from Gottschalk (2005).”
Separations, Sorting and Cyclical Unemployment (2017, unknown): “I refer to (12) as the effi cient-separation condition.”
A Plucking Model of Business Cycles (2019, unknown): “Gottschalk (2005) and Barattieri, Basu, and Gottschalk (2014) report similar figures based on analysis of the Survey of Income and Program Participation and correcting for measurement error in a different way.”
The Inflation-Output Trade-Off with Downward Wage Rigidities (2011, unknown): “Peter Gottschalk (2005) and Alessandro Barattieri, Susanto Basu, and Gottschalk (2009) find that measurement errors in wages reported in surveys can often lead to substantial underestimation of the extent of downward wage rigidities.”
Search and matching frictions and optimal monetary policy (2008, background): “Using equation (24) to substitute for the real wage in equation (6), I obtain the following job creation condition,”
A Behavioral Account of the Labor Market: The Role of Fairness Concerns (2008, background): “The setup in this study is somewhat complex, as the tree planters are paid a piece rate and the income change induced by the wage gift may interact with these explicit incentives (see Goette et al (2004)) for a discussion of these motives).”
An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining (2008, background): “[11] Gertler, Mark and Antonella Trigari (2006), “Unemployment Dynamics with Staggered Nash Wage Bargaining," mimeo, NYU [12] Gottschalk, Peter (2005).”
Resuscitating the Wage Channel in Models with Unemployment Fluctuations (2008, unknown): “not adjusting for possible reporting errors, cp. Gottschalk (2005) .”