Smith, Jennifer C. (2002) Pay cuts and morale : a test of downward nominal wage rigidity. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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Abstract

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 confirm that nominal cuts do make workers less happy than if their pay had not fallen. But we found no difference in the effect 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.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Wages, Employment, Employee morale
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	September 2002
Number:	No.649
Number of Pages:	23
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/86

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