Staggered contracts and unemployment during recessions

We analyze the impact of downward nominal wage rigidity (DNWR) due to collective bargaining agreements (CBAs) on wage and employment dynamics during two major recessions in Spain: the low-inflation recession of 2009, which included both short- and long-term CBAs, and the high-inflation recession of 1993, characterized by short-term CBAs. By exploiting variation in the timing of CBA renewals, we find that CBAs signed before recessions result in 1pp higher negotiated wage growth than those signed afterward. We leverage balance sheet data on firms and Social Security data on workers to document that CBA-induced DNWR accounted for 12% of job losses in 2009 due to higher wage growth, mainly among workers near the minimum wage floors. These workers experienced persistent non-employment, particularly if they were covered by long-term CBAs, and reallocation was limited. We find no real impacts in 1993, thus identifying conditions under which CBA-induced DNWR can amplify aggregate shocks. • Study the impact of downward wage rigidity on wage and employment in recessions. • Measure wage rigidity through province and sector collective contract staggering. • Collective contracts signed before the onset of recessions set higher wage growth. • Higher actual wage growth confined among workers with wages close to the floors. • Persistent employment losses only in recession with lengthy collective contracts.