Friday, May 11, 2018

Kansas City Fed: "Nominal Wage Rigidities and the Future Path of Wage Growth"

From the Federal Reserve Bank of Kansas City's Mainstreet Views, May 10:

Wage growth has been modest since the end of the Great Recession, puzzling many market observers and policymakers. We examine the relationship between wage growth and nominal wage rigidities—the share of workers whose wages have not changed—and find the current pace of wage growth is not historically unusual. Our results suggest wage growth may continue on its gradual path as long as the incidence of wage rigidities remains elevated.

The chart shows that following both the 2001 recession and the Great Recession, the share of workers with zero nominal wage change first increased and then gradually declined. However, the decline following the Great Recession was much more sluggish. Indeed, while nominal wage rigidities are below their post-Great Recession peak of 16.5 percent, they are still well above the peaks observed in the previous recovery—and they appear to be rising again....