Pay cuts and morale: a test of downward nominal rigidity

This paper tests the ‘morale’ theory of downward nominal wage rigidity. This theory relies on workers disliking nominal pay cuts: cuts should make workers less happy. We investigate this using panel data on individual employees’ pay and satisfaction. We con…rm that nominal cuts do make workers less happy than if their pay had not fallen. But we …nd no di¤erence in the e¤ect on happiness of cuts and pay freezes. This represents important information about the nature of wage rigidity in practice and the applicability of the morale theory. The morale theory may be able to explain generalised downward wage rigidity, but apparently fails to explain downward nominal rigidity.


Issue Date:
Sep 09 2002
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/269462
Language:
English
Total Pages:
22
JEL Codes:
J30; E24




 Record created 2018-03-09, last modified 2020-10-28

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