Fixed and flexible nominal wages: Evidence from panel data.

Using data for the years 1968-84 from the Michigan Panel Study of Income Dynamics, this study analyzes differential flexibility in nominal wages by tenure and occupation. The results show that short-run sensitivity to both unemployment and inflation is confined largely to low-tenure workers and that the cyclical upgrading and downgrading of employment opportunities makes a significant contribution to flexibility in nominal wages. The findings are consistent with a model in which long-term commitments insulate the wages of senior workers from short-run swings in economic conditions and in which nominal wages are largely noncyclical but employment opportunities shrink and expand. (Abstract courtesy JSTOR.)