Nominal Wage Rigidity in Village Labor Markets | Zendy

Supreet Kaur | Zendy

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Nominal Wage Rigidity in Village Labor Markets

Author(s) -

Supreet Kaur

Publication year - 2019

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20141625

Subject(s) - economics , wage , rigidity (electromagnetism) , inflation (cosmology) , labour economics , demand shock , monetary economics , physics , structural engineering , theoretical physics , engineering

This paper develops a new approach to test for downward wage rigidity by examining transitory shocks to labor demand (i.e., rainfall) across 600 Indian districts. Nominal wages rise during positive shocks but do not fall during droughts. In addition, transitory positive shocks generate ratcheting: after they have dissipated, wages do not adjust back down. Ratcheting reduces employment by 9 percent, indicating that rigidities distort employment levels. Inflation, which is unaffected by local rainfall, enables downward real wage adjustments—offering causal evidence for its labor market effects. Surveys suggest that individuals believe nominal wage cuts are unfair and lead to effort reductions. (JEL E24, E31, J23, J31, O15, O18, R23)

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