NOMINAL-CONTRACTING THEORIES OF UNEMPLOYMENT - EVIDENCE FROM PANEL-DATA

This paper examines economy-wide and sector-specific responses of real wages to nominal shocks using micro panel data from the National Long itudinal Survey of Young Men. The observed response patterns provide n o support for nominal-contracting theories of unemployment, which pred ict that nominal surprises should be negatively correlated with real w ages. In fact, both inflation and money-growth surprises are found to be essentially uncorrelated with real wages. Either a real-business-cy cle model or a model with rigidities in commodity prices could be cons istent with these results.