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This paper uses two nationally representative household surveys, the Current Population Survey (1979-2017) and the Survey of Income and Program Participation (1984-2013), to establish the existence and cyclical pattern of downward nominal wage rigidity in the United States. The distribution of individual workers' year-over-year changes in nominal hourly wages has a large spike at zero and is asymmetric, with many more raises than cuts. The distribution also exhibits a notable cyclical pattern: the share of workers with no wage changes, which accounts for the spike at zero, has greater countercyclical fluctuations compared to the share of workers with wage cuts. This finding, which is novel in the literature, suggests that downward nominal wage rigidity exists, with potentially important implications for fluctuations in employment. Finally, this paper compares heterogeneous agent models with five alternative wage-setting schemes—perfectly flexible, Calvo, long-term contracts, menu costs, and downward nominal wage rigidity—and shows that only the model with downward nominal wage rigidity is consistent with the empirical findings regarding the shape and cyclicality of the wage change distribution.
