Even if both firms and workers agreed to reduce nominal wages
, this could lead to a decline in prices such that the real wage would not go down, preventing the mechanism which brings supply and demand into equilibrium from operating.
Sluggish wage growth in the post-recession era can predominantly be attributed to nominal wage
rigidity, still-high underemployment, and an elevated share of part-time workers.
Using data on nominal wages
of hourly workers in the private sector from the Survey of Income and Program Participation, Mustre-del-Rio constructs the series of monthly wage growth for job switchers (without an intervening spell of joblessness).
The report says: "Negative inflation for part of this year and a steady pickup in nominal wage
growth to 1.
With rigid nominal wages
, labor costs are initially more driven by the reduction of the social security contributions rate, allowing for lower output prices.
We look at different data sources, variations across major groups in the workforce and explore in more detail the evidence for nominal wage
Real wages are shown to decrease if fewer goods and services are bought because of inflation even though nominal wages
However, the trend line in nominal wages
flattened just before the official recession ended in June 2009.
Fiscal Studies editor Claire Crawford said: "The falls in nominal wages
workers have experienced are unprecedented.
were down in year-on-year terms at the end of the year, in keeping with the vital cost adjustment in the economy and the maintenance of wage growth below productivity growth.
Available figures show that nominal wages
grew in Austria, the Netherlands, Norway, Slovakia and Spain in 2011, remained unchanged in Belgium, Germany and the United Kingdom, and declined in the Czech Republic, Italy, Malta, Portugal and Sweden.
For several months, monthly job creations have exceeded 150,000 and nominal wages
have been increasing at a four per cent annual rate," it added.