Sticky Wages on the Layoff Margin
Steven J. Davis, Pawel M. Krolikowski
American Economic Review · 2025 · Volume 115 · Issue 2
Abstract
We design and field an innovative survey of unemployment insurance (UI) recipients that yields new insights about wage stickiness on the layoff margin. A majority of UI recipients would accept pay cuts of 5–10 percent to save their jobs, and one-third would accept a 25 percent cut. Yet worker-employer discussions about cuts in pay, benefits, or hours in lieu of layoffs are exceedingly rare. Roughly one-quarter of the layoffs in our sample violate the theoretical condition for bilaterally efficient separations. We draw on our findings and other evidence to assess theories of wage stickiness and its role in layoffs.
Keywords
Survey Methods, Sampling Methods, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Wage Level and Structure, Wage Differentials, Labor Turnover, Vacancies, Layoffs, Unemployment Insurance, Severance Pay, Plant Closings
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