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On the Cyclicality and Stability of Real Earnings

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Author Info
Bob Hart
Jim Malley

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Abstract

We show in this paper that important insights into the cyclical behaviour of wages can be gained by dividing (real) average hourly earnings into their straight-time hourly wage and overtime components. Our motivation is based on the idea of employment-contingent contracts. BLS published and unpublished statistics are used to decompose average earnings into (i) the straight-time wage rate, (ii) the ‘mark-up’ needed to achieve an overtime worker’s earnings rate, and (iii) the proportion of workers working overtime. Using monthly manufacturing data from 1962–1997, cyclicality measures of these components are based on contemporaneous bivariate correlations using four alternative detrending methods while stability is examined using recursive estimation and testing methods. While the wage rate is generally acyclical and unstable, the other two components are highly pro-cyclical and relatively stable.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 1999_13.

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Date of creation: Apr 1999
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Handle: RePEc:gla:glaewp:1999_13

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Find related papers by JEL classification:
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June. [Downloadable!] (restricted)
  2. Paxson, Christina H & Sicherman, Nachum, 1996. "The Dynamics of Dual Job Holding and Job Mobility," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 357-93, July. [Downloadable!] (restricted)
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  3. Hall, Robert E & Lilien, David M, 1979. "Efficient Wage Bargains under Uncertain Supply and Demand," American Economic Review, American Economic Association, vol. 69(5), pages 868-79, December. [Downloadable!] (restricted)
  4. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278. [Downloadable!] (restricted)
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  5. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept. [Downloadable!] (restricted)
  6. Harvey, Andrew C. & Collier, Patrick, 1977. "Testing for functional misspecification in regression analysis," Journal of Econometrics, Elsevier, vol. 6(1), pages 103-119, July. [Downloadable!] (restricted)
  7. Trejo, Stephen J, 1993. "Overtime Pay, Overtime Hours, and Labor Unions," Journal of Labor Economics, University of Chicago Press, vol. 11(2), pages 253-78, April. [Downloadable!] (restricted)
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  8. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  9. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September. [Downloadable!] (restricted)
  10. Ulrich Woitek, 1998. "A Note on the Baxter-King Filter," Working Papers 9813, Department of Economics, University of Glasgow. [Downloadable!]
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  1. Saint-Paul, Gilles, 2000. "Flexibility vs. Rigidity: Does Spain have the worst of both Worlds?," IZA Discussion Papers 144, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Hart, Robert A. & Malley, James R. & Woitek, Ulrich, 2001. "Real Wages and the Cycle: The View from the Frequency Domain," IZA Discussion Papers 325, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Catalina Amuedo-Dorantes & Jean Kimmel, 2005. "Moonlighting Behavior over the Business Cycle," IZA Discussion Papers 1671, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Zweimüller, Josef & Winter-Ebmer, Rudolf, 2000. "Firm-specific Training: Consequences for Job Mobility," IZA Discussion Papers 138, Institute for the Study of Labor (IZA). [Downloadable!]
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