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Real Wages over the Business Cycle

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Author Info
Edward N. Gamber (Congressional Budget Office)
Frederick L. Joutz (George Washington University)
Abstract

The real wage is acyclical. This fact is inconsistent with standard theories which assume a single shock drives the cycle and predict either a strong pro or countercyclical real wage. This paper tests the hypothesis that the real wage is acyclical because there are several shocks, some with opposing effects on the real wage, driving the business cycle. We find evidence in support of this hypothesis. In particular, we find real wages are procyclical in response to labor demand shocks and countercyclical in response to labor supply, aggregate demand and oil price shocks with the strongest countercyclical movements arising from aggregate demand.

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File URL: http://college.holycross.edu/eej/Volume23/V23N3P277_291.pdf
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Publisher Info
Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 23 (1997)
Issue (Month): 3 (Summer)
Pages: 277-291
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Handle: RePEc:eej:eeconj:v:23:y:1997:i:3:p:277-291

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Postal: Dr. Mary H. Lesser, Department of Economics, Iona College, New Rochelle, NY 10801-1890
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Related research
Keywords: Business Cycles; Countercyclical; Cycle; Procyclical; Wage;

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

Cited by:
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  1. Charles A. Fleischman, 1999. "The causes of business cycles and the cyclicality of real wages," Finance and Economics Discussion Series 1999-53, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Jean-Pierre Danthine & André Kurmann, 2005. "The Macroeconomic Consequences of Reciprocity in Labor Relations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 05.08, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
    Other versions:
  3. Thomas J. Carter, 2005. "Monetary Policy, Efficiency Wages, and Nominal Wage Rigidities," Eastern Economic Journal, Eastern Economic Association, vol. 31(3), pages 349-359, Summer. [Downloadable!]
  4. Jean-Pierre DANTHINE & André KURMANN, 2007. "The Business Cycle Implications of Reciprocity in Labor Relations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 07.12, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
    Other versions:
  5. Jean-Pierre DANTHINE & André KURMANN, 2004. "Efficiency Wages Revisited: The Internal Reference Perspective (new version)," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 04.09, Université de Lausanne, Faculté des HEC, DEEP, revised Jun 2005. [Downloadable!]
  6. Martin B. Schmidt, 2003. "The relative adjustment of wages and prices: direct tests within a multiple-equation system," Applied Economics, Taylor and Francis Journals, vol. 35(8), pages 985-997, January. [Downloadable!] (restricted)
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