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Heterogeneity in Real Wage Cyclicality

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  • Martins, Pedro S.

    ()
    (Queen Mary, University of London)

Abstract

This paper presents evidence that real wage cyclicality can be a particularly heterogeneous parameter, depending on different worker characteristics and also on the specific stage of the business cycle. Using matched employer-employee panel data for Portugal covering the period 1986-2004, real wages are shown to be considerably more procyclical during recessions than during expansions, resulting in relatively moderate overall levels of cyclicality (about -0.6). However, most of the procyclicality during downturns is shown to be driven by the younger employees, as older workers appear to be insulated from the business cycle. Moreover, movers between firms typically display higher cyclicality than workers that stay in the same firm, regardless of whether the latter move or not between job levels. Most results also hold when considering basic wages instead of total wages, except that the procyclicality of movers during downturns is substantially higher.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2929.

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Length: 21 pages
Date of creation: Jul 2007
Date of revision:
Publication status: published in: Scottish Journal of Political Economy, 54(5), 684-698, 2007
Handle: RePEc:iza:izadps:dp2929

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Keywords: wage rigidity; matched employer-employee data; worker mobility;

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References

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  1. José Varejão & Pedro Portugal, 2003. "Employment Dynamics and the Structure of Labor Adjustment Costs," Working Papers, Banco de Portugal, Economics and Research Department w200312, Banco de Portugal, Economics and Research Department.
  2. Paul J. Devereux, 2001. "The Cyclicality of real wages within employer-employee matches," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, ILR Review, Cornell University, ILR School, vol. 54(4), pages 835-850, July.
  3. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers, CIRANO 94s-23, CIRANO.
  4. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 33(3), pages 1215-1264, September.
  5. Anabela Carneiro & Pedro Portugal, 2004. "Workers' Flows and Real Wage Cyclicality," Working Papers, Banco de Portugal, Economics and Research Department w200409, Banco de Portugal, Economics and Research Department.
  6. Martins, Pedro S., 2004. "Rent Sharing Before and After the Wage Bill," IZA Discussion Papers, Institute for the Study of Labor (IZA) 1376, Institute for the Study of Labor (IZA).
  7. Hart, Robert A., 2003. "Worker-Job Matches, Job Mobility, and Real Wage Cyclicality," IZA Discussion Papers, Institute for the Study of Labor (IZA) 881, Institute for the Study of Labor (IZA).
  8. Donggyun Shin & Gary Solon, 2007. "New Evidence On Real Wage Cyclicality Within Employer-Employee Matches," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 54(5), pages 648-660, November.
  9. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, Elsevier, vol. 32(3), pages 385-397, August.
  10. Devereux, Paul J. & Hart, Robert A., 2005. "Real Wage Cyclicality of Job Stayers, Within-Company Job Movers, and Between-Company Job Movers," IZA Discussion Papers, Institute for the Study of Labor (IZA) 1651, Institute for the Study of Labor (IZA).
  11. Robert Shimer, 2005. "The cyclicality of hires, separations, and job-to-job transitions," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jul, pages 493-508.
  12. Eric T. Swanson, 2007. "Real wage cyclicality in the PSID," Working Paper Series, Federal Reserve Bank of San Francisco 2007-15, Federal Reserve Bank of San Francisco.
  13. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(3), pages 699-726, August.
  14. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 1-25, February.
  15. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 665-88, August.
  16. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(4), pages 666-89, August.
  17. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, American Economic Association, vol. 91(1), pages 187-207, March.
  18. Barlevy, Gadi, 2001. "Why Are the Wages of Job Changers So Procyclical?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 19(4), pages 837-78, October.
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Cited by:
  1. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 4(4), pages 36-55, October.
  2. Pedro S. Martins, 2008. "Paying More to Hire the Best? Foreign Firms, Wages and Worker Mobility," Working Papers, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research 17, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  3. Pedro S. Martins & Gary Solon & Jonathan Thomas, 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," NBER Working Papers, National Bureau of Economic Research, Inc 15767, National Bureau of Economic Research, Inc.
  4. Martins, Pedro S., 2008. "Dispersion in wage premiums and firm performance," Economics Letters, Elsevier, Elsevier, vol. 101(1), pages 63-65, October.
  5. Anabela Carneiro & Paulo Guimarães & Pedro Portugal, 2009. "Real Wages and the Business Cycle: Accounting for Worker and Firm Heterogeneity," Working Papers, Banco de Portugal, Economics and Research Department w200910, Banco de Portugal, Economics and Research Department.
  6. Anger, Silke, 2011. "The Cyclicality of Effective Wages within Employer–Employee Matches in a Rigid Labor Market," EconStor Open Access Articles, ZBW - German National Library of Economics, ZBW - German National Library of Economics, pages 786-797.

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