Downward Nominal Wage Rigidity and Asymmetric Effects of Monetary Policy

This paper provides industry-level evidence on the presence of downward nominal wage rigidity and asymmetric effects of monetary policy in the US labor markets. Focusing on industry-level data from 1975q1 to 2020q4, we find strong evidence for the downward nominal wage rigidity (DNWR) channel in service-sector industries. Consistent with this channel, service-sector industries with downward-sticky (downward-flexible) wages show larger (muted) employment losses in response to monetary contractions. On the other hand, we find that the DNWR channel holds weakly in the manufacturing sector and we examine this in the context of trade integration policies of recent decades. Our results show that increasing exposure to the China shock weakens the DNWR mechanism for manufacturing industries