Seminar
Past
Inflation Expectations and Wage Setting: The Role of Downward Nominal Wage Rigidity
Sarah Lein (University of Basel)
- Date3 November 2026
- Time 11h30 - 12h30
- Room Online and room E336
Résumé
The pass-through of inflation expectations into wages is typically found to be modest. We show that this aggregate response masks substantial heterogeneity across firms and that downward nominal wage rigidity (DNWR) plays a central role in shaping both the magnitude and the horizon of this pass-through. Combining a randomized information provision experiment involving Swiss firm managers with a granular measure of DNWR derived from administrative wage data, we find that firms with high DNWR exposure exhibit substantially stronger pass-through of inflation expectations into expected wage growth than firms with low exposure. Moreover, while the response is strongest for short-term inflation expectations, longer-term expectations also affect current wage plans among firms with high DNWR exposure. We develop a stylized wage-setting framework that rationalizes these findings. When nominal wage cuts are constrained, current wage decisions restrict firms' ability to adjust wages in the future. Anticipating this constraint, firms incorporate inflation expectations beyond the current wage contract into their wage-setting decisions. DNWR thus amplifies the pass-through of inflation expectations into wages and extends the horizon over which these expectations matter.
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