Did firms cut nominal wages in a deflationary environment?: Micro-level evidence from the late 19th and early 20th century banking industry

This paper examines wage adjustment in the late 19th and early 20th centuries using personnel records from the Union Bank of Australia and Williams Deacon's Bank (England). During the period of this study there was steep and prolonged deflation. Firm-specific and industry-specific demand shocks also put downwards pressure on wages. Although it was common for individual wages at the banks to remain unchanged from year to year, wage cuts were very rare even for senior workers. Turnover at both banks was extremely low and, thus, despite flexibility in the wages of incoming workers, did not offset the effects of individual-level wage rigidity. Consequently real wages moved counter-cyclically.