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Truman F. Bewley

24 July 2007
I describe insights into wage dynamics and downward wage rigidity obtained from more than two hundred interviews with businesspeople, labor leaders, and various labor market intermediaries and made in the early 1990s in the Northeast of the United States. I explain the morale explanation for downward rigidity of the pay of existing employees and discuss what morale is, why businesspeople care about it, and why pay cuts damage it. I discuss the origin and nature of pay structures internal to an establishment, the relation between pay at different establishments, and why firms tend to lay off workers rather than cut pay. The findings of the study to be discussed are reported in detail in Truman Bewley, Why Wages Don't Fall during a Recession. Cambridge, MA: Harvard University Press (1999).
JEL Code
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
J3 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs
J5 : Labor and Demographic Economics→Labor?Management Relations, Trade Unions, and Collective Bargaining
ECB/CEPR labour market workshop on wage and labour cost dynamics