Firms facing negative shocks reduce labor costs through layoffs rather than nominal wage cuts
the verdict
SUPPORTED
the evidence backs this
confidence 83/100
Evidence consistently shows that downward nominal wage rigidity prevents firms from cutting wages during negative shocks, forcing them to adjust labor costs primarily through layoffs and employment reductions.
Evidence for · 5
The Extent of Downward Nominal Wage Rigidity: New Evidence from Payroll Data
2022 · cited by 16
Demonstrates that basic wages exhibit downward nominal rigidity, with very few employees experiencing wage cuts even during economic downturns.
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More for · 4
Wage Rigidity and Employment Outcomes: Evidence from Administrative Data
2024 · cited by 12
Shows that downward nominal wage rigidity prevents wage cuts and leads to higher layoff rates as firms adjust labor costs through employment rather than wages.
Downward Nominal Wage Rigidity in Europe
2004 · cited by 5
Finds consistent evidence of downward nominal wage rigidity across European countries and industries, limiting the use of wage cuts.
Impacts of the COVID-19 Pandemic and the CARES Act on Earnings and Inequality
2020 · cited by 0
Provides empirical evidence from the COVID-19 pandemic showing that aggregate earnings declines were entirely driven by employment losses rather than atypical earnings changes for those who remained employed.
Impacts of the Covid-19 Pandemic and the Cares Act on Earnings and Inequality
2020 · cited by 0
Reiterates that pandemic-related earnings losses were driven by declines in employment while individuals remaining employed experienced no atypical earnings changes.