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The extent and nature of downward nominal wage flexibility: An analysis of longitudinal worker/establishment data from Korea

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  • Park, Seonyoung
  • Shin, Donggyun

Abstract

Analysis of a special dataset constructed from the Survey on Labor Conditions by Type of Employment finds evidence that does not support the downward nominal wage rigidity hypothesis during the 2008–2009 through 2012–2013 period, which was a period of low inflation and low economic growth. Our analysis finds at least one in every four job stayers experienced nominal wage cuts from one year to the next, and few experienced nominal wage freezes. The extent of downward nominal wage flexibility is somewhat greater in Korea than in Great Britain and the United States, which have the most flexible labor markets among OECD countries. Our analysis at the establishment level uncovers the nature of this downward nominal wage flexibility. The observed downward flexibility does not result from a fraction of employers cutting most of their workers’ wages, but from a majority of employers cutting a fraction of their workers’ wages fairly routinely. The size of nominal wage reductions is substantial. In addition, employers tend to ‘choose’ high wage earners for wage cuts.

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  • Park, Seonyoung & Shin, Donggyun, 2017. "The extent and nature of downward nominal wage flexibility: An analysis of longitudinal worker/establishment data from Korea," Labour Economics, Elsevier, vol. 48(C), pages 67-86.
    • Handle: RePEc:eee:labeco:v:48:y:2017:i:c:p:67-86
    DOI: 10.1016/j.labeco.2017.06.004
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    Cited by:

    1. Michael W. L. Elsby & Gary Solon, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 185-201, Summer.
    2. Seonyoung Park & Donggyun Shin, 2019. "Inflation And Wage Rigidity/Flexibility In The Short Run," Economic Inquiry, Western Economic Association International, vol. 57(3), pages 1675-1697, July.
    3. Ekaterina S. Jardim & Gary Solon & Jacob L. Vigdor, 2019. "How Prevalent Is Downward Rigidity in Nominal Wages? Evidence from Payroll Records in Washington State," NBER Working Papers 25470, National Bureau of Economic Research, Inc.
    4. Daniel Schaefer & Carl Singleton, 2020. "Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data," Economics Discussion Papers em-dp2020-01, Department of Economics, University of Reading.
    5. Seonyoung Park & Donggyun Shin, 2019. "Inflation And Wage Rigidity/Flexibility In The Short Run," Economic Inquiry, Western Economic Association International, vol. 57(3), pages 1675-1697, July.

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    More about this item

    Keywords

    Nominal wages; Establishment; Flexibility; Payroll; Inflation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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