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INFLATION AND WAGE RIGIDITY/FLEXIBILITY IN THE SHORT RUN
Author(s) -
Park Seonyoung,
Shin Donggyun
Publication year - 2019
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12786
Subject(s) - payroll , economics , wage , rigidity (electromagnetism) , flexibility (engineering) , deflation , inflation (cosmology) , keynesian economics , labour economics , recession , monetary economics , monetary policy , physics , accounting , structural engineering , management , theoretical physics , engineering
A recent literature uses accurate wage data from payroll records and provides compelling evidence against the conventional belief that nominal wages are downward sticky. This paper provides a unique contribution to this literature by conducting a formal analysis of the role of inflation in cyclical wage rigidity/flexibility. Analysis of payroll‐based wage data from the Korean labor market for the period 1971–2014 finds that the degree of downward nominal wage flexibility is countercyclical, and the countercyclicality becomes stronger during a deflationary, relative to inflationary, recession. This serves as a counter‐example to the conventional theory of cyclical wage rigidity. ( JEL E24, E32, J30, J64)