RIGID WAGES

How rigid are wages? To answer this question, I empirically investigate the nature of wage rigidity at the individual level. I find that wages in panel data vary considerably: real wage cuts are common, and nominal wage cuts are not rare. For most workers, the distribution of wage growth is not skewed away from wage cuts. The high frequency of small wage changes is inconsistent with menu cost models that censor small wage changes. The evidence supporting nominal wage rigidity is a small spike at zero in the nominal wage growth distribution and incomplete indexing of nominal wage growth to unanticipated inflation.