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Sticky Wages on the Layoff Margin

Author

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  • Steven J. Davis
  • Pawel M. Krolikowski

Abstract

We design and field an innovative survey of unemployment insurance (UI) recipients that yields new insights about wage stickiness on the layoff margin. A majority of UI recipients would accept pay cuts of 5–10 percent to save their jobs, and one-third would accept a 25 percent cut. Yet worker-employer discussions about cuts in pay, benefits, or hours in lieu of layoffs are exceedingly rare. Roughly one-quarter of the layoffs in our sample violate the theoretical condition for bilaterally efficient separations. We draw on our findings and other evidence to assess theories of wage stickiness and its role in layoffs.

Suggested Citation

  • Steven J. Davis & Pawel M. Krolikowski, 2025. "Sticky Wages on the Layoff Margin," American Economic Review, American Economic Association, vol. 115(2), pages 491-524, February.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:2:p:491-524
    DOI: 10.1257/aer.20240309
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    More about this item

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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