Webinar: Sticky Wages on the Layoff Margin

This is an online Zoom seminar. If you would like to attend, please email organizer Bjoern Brugemann.

Abstract: We design and field an innovative survey of unemployment insurance (UI) recipients that yields new insights about wage stickiness on the layoff margin. Most UI recipients express a willingness to accept wage cuts of 5-10 percent to save their lost jobs, and one-third are willing to take a 25 percent cut. Yet worker-employer discussions about cuts in pay, benefits, or hours in lieu of layoffs are exceedingly rare. When asked why such discussions don't happen, nearly four-in-ten UI recipients don't know. 36 percent doubt wage cuts would save their jobs, and 16 percent say cuts would undermine morale or lead the best workers to quit. For lost union jobs, 45 percent say contractual restrictions prevent wage cuts. Adjusting for jobs that can't be salvaged according to respondents, our results suggest that wage cuts acceptable to workers could prevent about 30 percent of layoffs that result in UI benefits. Among those who reject our hypothetical pay cuts, 45 percent say they have better outside options, 35 percent regard pay cuts as insulting, and 21 percent prefer unemployment to working at the proposed wage. We draw on our findings and other evidence to assess (a) the role of sticky wages in layoffs and (b) worker-side willingness to accept wage cuts in lieu of job loss alongside the inability or unwillingness of employers to offer such deals.

Joint with Steve Davis (Chicago Booth)