Why Wages Don't Fall during a Recession
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Why Wages Don't Fall during a Recession

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eBook - PDF

Why Wages Don't Fall during a Recession

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About This Book

A deep question in economics is why wages and salaries don't fall during recessions. This is not true of other prices, which adjust relatively quickly to reflect changes in demand and supply. Although economists have posited many theories to account for wage rigidity, none is satisfactory. Eschewing "top-down" theorizing, Truman Bewley explored the puzzle by interviewing—during the recession of the early 1990s—over three hundred business executives and labor leaders as well as professional recruiters and advisors to the unemployed.By taking this approach, gaining the confidence of his interlocutors and asking them detailed questions in a nonstructured way, he was able to uncover empirically the circumstances that give rise to wage rigidity. He found that the executives were averse to cutting wages of either current employees or new hires, even during the economic downturn when demand for their products fell sharply. They believed that cutting wages would hurt morale, which they felt was critical in gaining the cooperation of their employees and in convincing them to internalize the managers' objectives for the company. Bewley's findings contradict most theories of wage rigidity and provide fascinating insights into the problems businesses face that prevent labor markets from clearing.

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Information

Publisher
Harvard University Press
Year
2009
ISBN
9780674020900
Topic
Business
Subtopic
Business Development
Index
Business

Table of contents

  1. Contents
  2. Acknowledgements
  3. 1. Introduction
  4. 2. Methods
  5. 3. Time and Location
  6. 4. Morale
  7. 5. Company Risk Aversion
  8. 6. Internal Pay Structure
  9. 7. External Pay Structure
  10. 8. The Shirking Theory
  11. 9. The Pay of New Hires in the Primary Sector
  12. 10. Raises
  13. 11. Resistance to Pay Reduction
  14. 12. Experiences with Pay Reduction
  15. 13. Layoffs
  16. 14. Severance Benefits
  17. 15. Hiring
  18. 16. Voluntary Turnover
  19. 17. The Secondary Sector
  20. 18. The Unemployed
  21. 19. Information, Wage Rigidity, and Labor Negotiations
  22. 20. Existing Theories
  23. 21. Remarks on Theory
  24. 22. Whereto from Here?
  25. Notes
  26. References
  27. Index