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A deep recession came with deep wage cuts

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  • Olafsdottir, Katrin

Abstract

While economists historically have considered wages rigid downwards, recent studies have shown that cuts in nominal wages are more common than previously thought. The deep recession experienced in Iceland in 2008, coupled with Iceland’s flexible labor market provided an extreme example of a labor market that experienced widespread and deep cuts in nominal wages. Data covering two-fifths of the labor market showed that 80% of employees experienced a nominal cut in regular hourly wages between 2008 and 2010. The data was collected directly from organizations, and excluded the effects of a change in hours worked. Nominal hourly wages for full time work were cut by 9.3% on average, at the same time inflation measured 18%.

Suggested Citation

  • Olafsdottir, Katrin, 2020. "A deep recession came with deep wage cuts," Economics Letters, Elsevier, vol. 189(C).
    • Handle: RePEc:eee:ecolet:v:189:y:2020:i:c:s0165176520300653
    DOI: 10.1016/j.econlet.2020.109056
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    References listed on IDEAS

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    Cited by:

    1. Miller, Keaton, 2020. "Sharing the sacrifice, minimizing the pain: Optimal wage reductions," Economics Letters, Elsevier, vol. 196(C).

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    More about this item

    Keywords

    Nominal wage cuts; Recession; Iceland;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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