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Pay cuts and morale: a test of downward nominal rigidity

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  • Smith, Jennifer C.

Abstract

This paper tests the ‘morale’ theory of downward nominal wage rigidity. This theory relies on workers disliking nominal pay cuts: cuts should make workers less happy. We investigate this using panel data on individual employees’ pay and satisfaction. We con…rm that nominal cuts do make workers less happy than if their pay had not fallen. But we …nd no di¤erence in the e¤ect on happiness of cuts and pay freezes. This represents important information about the nature of wage rigidity in practice and the applicability of the morale theory. The morale theory may be able to explain generalised downward wage rigidity, but apparently fails to explain downward nominal rigidity.

Suggested Citation

  • Smith, Jennifer C., 2002. "Pay cuts and morale: a test of downward nominal rigidity," Economic Research Papers 269462, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269462
    DOI: 10.22004/ag.econ.269462
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    Cited by:

    1. Thomas Beissinger & Chritoph Knoppik, 2005. "Sind Nominallöhne starr? Neuere Evidenz und wirtschaftspolitische Implikationen," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(2), pages 171-188, May.
    2. Alexander V. Larin, 2014. "Downward Nominal Wage Rigidity: Unions’ Merit Or Firms’ Foresight?," HSE Working papers WP BRP 86/EC/2014, National Research University Higher School of Economics.
    3. Sasaki, Masaru & Ohtake, Fumio, 2013. "Corporate Sports Activity and Work Morale: Evidence from a Japanese Automobile Maker," IZA Discussion Papers 7836, Institute of Labor Economics (IZA).

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