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On the Cyclicality and Stability of Real Earnings

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  • Bob Hart
  • Jim Malley

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 BLS published and unpublished statistics are used to decompose average earnings into (i) the straight-time wage rate, (ii) the ‘mark-up’ needed to achieve an overtime worker’s earnings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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Bibliographic Info

Paper provided by Business School - 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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  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.
  2. 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.
  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.
  4. 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.
  5. Harvey, Andrew C. & Collier, Patrick, 1977. "Testing for functional misspecification in regression analysis," Journal of Econometrics, Elsevier, vol. 6(1), pages 103-119, July.
  6. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
  7. 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.
  8. 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.
  9. 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.
  10. Ulrich Woitek, 1998. "A Note on the Baxter-King Filter," Working Papers 9813, Business School - Economics, University of Glasgow.
  11. 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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Cited by:
  1. Bob Hart & Jim Malley & Ulrich Woitek, 2001. "Real Wages and the Cycle: The View from the Frequency Domain," Working Papers 2001_2, Business School - Economics, University of Glasgow.
  2. Gilles Saint Paul, 2000. "Flexibility vs. rigidity: Does Spain have the worst of both worlds?," Economics Working Papers 450, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Zweimüller, Josef & Winter-Ebmer, Rudolf, 2000. "Firm-specific Training: Consequences for Job Mobility," IZA Discussion Papers 138, Institute for the Study of Labor (IZA).
  4. Amuedo-Dorantes, Catalina & Kimmel, Jean, 2005. "Moonlighting Behavior over the Business Cycle," IZA Discussion Papers 1671, Institute for the Study of Labor (IZA).

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