Downward nominal wage rigidity: Evidence from Canada 1901–1950

This paper tests for the presence of downward nominal wage rigidity in Canadian wage data for 26 occupations in 38 cities from the first half of the 20th century. The sample is of particular interest as it contains periods with average inflation rates that are close to zero as well as two sharp deflations. Results from a variety of different tests indicate that wage change distributions are consistent with the presence of downward nominal wage rigidity. However, for two subsamples containing sharp declines in output and prices, estimates of the extent of downward nominal wage rigidity are much lower. This suggests that downwards adjustments did occur during times of severe depression and deflation.