Nominal wage rigidity prior to compulsory arbitration: evidence from the Victorian Railways, 1902–1921

Abstract

Studies across a wide range of countries have shown that relatively few workers have received year-to-year wage cuts since the Second World War. However, there is very little micro-level evidence from earlier years, when lower inflation rates and a less regulated labour market may have led to stronger downwards pressure on wages. This paper examines wage adjustment at the Victorian Railways, Australia, between 1902 and 1921. It is shown that, despite strong downwards pressure on wages, nominal wages were rigid downwards and a high proportion of triennial wage changes were exactly zero. Even for workers with very long tenure and in years when the national price level declined, wage cuts were rare. We also show that the characteristics of workers whose wages were unchanged were very similar to those receiving wage cuts. Finally, we show that unlike the wages of incumbent staff, entry wages for new junior staff frequently declined from year to year.