Why Wages Don't Fall During a Recession

by Bewley, Truman F.

• ISBN13: 9780674009431
• ISBN10: 0674009436
• Format: Paperback
• Copyright: 2002-09-30
• Publisher: Harvard Univ Pr

Summary

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.

Table of Contents

Acknowledgments	vii
Introduction	1	(19)
Methods	20	(18)
Time and Location	38	(3)
Morale	41	(16)
Company Risk Aversion	57	(13)
Internal Pay Structure	70	(16)
External Pay Structure	86	(24)
The Shirking Theory	110	(21)
The Pay of New Hires in the Primary Sector	131	(22)
Raises	153	(17)
Resistance to Pay Reduction	170	(29)
Experiences with Pay Reduction	199	(19)
Layoffs	218	(45)
Severance Benefits	263	(14)
Hiring	277	(26)
Voluntary Turnover	303	(6)
The Secondary Sector	309	(20)
The Unemployed	329	(48)
Information; Wage Rigidity, and Labor Negotiations	377	(21)
Existing Theories	398	(32)
Remarks on Theory	430	(34)
Whereto from Here?	464	(7)
Notes	471	(6)
References	477	(48)
Index	525