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 BLS published and unpublished statistics are used to decompose average earnings into (i) the straight-time wage rate, (ii) the ‘mark-up’ needed to achieve an overtime worker’s earnings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

Suggested Citation

  • Bob Hart & Jim Malley, 1999. "On the Cyclicality and Stability of Real Earnings," Working Papers 1999_13, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:1999_13
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    Cited by:

    1. Josef Zweimueller & Rudolf Winter-Ebmer, "undated". "Firm-specific Training: Consequences for Job Mobility," IEW - Working Papers 037, Institute for Empirical Research in Economics - University of Zurich.
    2. 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.
    3. 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.
    4. Amuedo-Dorantes, Catalina & Kimmel, Jean, 2005. "Moonlighting Behavior over the Business Cycle," IZA Discussion Papers 1671, Institute of Labor Economics (IZA).

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    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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