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Changes in the Cyclical Sensitivity of Wages in the United States, 1891-1987

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  • Steven G. Allen

Abstract

The conventional wisdom that nominal wages became less sensitive to the business cycle and more autocorrelated after World War II is reexamined here by considering whether these properties are artifacts of the methods used to construct prewar wage series. A replication based on these methods is more cyclically sensitive and exhibits less autocorrelation than the postwar data. Aggregation using variable instead of fixed employment weights also greatly exaggerates the cyclicality of prewar wages. These biases imply that wages are just as sensitive to the cycle today as 100 years ago, perhaps even more so.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3854.

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Date of creation: Sep 1991
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Publication status: published as American Economic Review, March 1992, Volume 82, No. 1, pp. 122-140
Handle: RePEc:nbr:nberwo:3854

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  1. Romer, Christina, 1986. "Spurious Volatility in Historical Unemployment Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 1-37, February.
  2. J. Bradford DeLong & Lawrence H. Summers, 1986. "The Changing Cyclical Variability of Economic Activity in the United States," NBER Chapters, National Bureau of Economic Research, Inc, in: The American Business Cycle: Continuity and Change, pages 679-734 National Bureau of Economic Research, Inc.
  3. John B. Taylor, 1986. "Improvements in Macroeconomic Stability: The Role of Wages and Prices," NBER Chapters, National Bureau of Economic Research, Inc, in: The American Business Cycle: Continuity and Change, pages 639-678 National Bureau of Economic Research, Inc.
  4. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis And The European Unemployment Problem," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  5. Oi, Walter Y., 1976. "On measuring the impact of wage-price controls: A critical appraisal," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 2(1), pages 7-64, January.
  6. G. Warren Nutter & Israel Borenstein & Adam Kaufman, 1962. "Growth of Industrial Production in the Soviet Union," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number nutt62-1.
  7. Charles L. Schultze, 1981. "Some Macro Foundations for Micro Theory," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 521-592.
  8. Kim B. Clark & Lawrence H. Summers, 1979. "Labor Market Dynamics and Unemployemnt: A Reconsideration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1), pages 13-72.
  9. Santomero, Anthony M & Seater, John J, 1978. "The Inflation-Unemployment Trade-off: A Critique of the Literature," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 16(2), pages 499-544, June.
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Cited by:
  1. Kandil, Magda & Woods, Jeffrey G., 1995. "A cross-industry examination of the Lucas misperceptions model," Journal of Macroeconomics, Elsevier, Elsevier, vol. 17(1), pages 55-76.

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