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Do employers provide insurance against low frequency shocks? Industry employment and industry wages

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  • Paul J. Devereux

Abstract

I use panel data to examine whether long-term changes in industry wages are positively related to long-term changes in industry employment. Previous research using repeated cross-sectional data found no systematic relationship between these variables. Using standard fixed effects models to deal with individual heterogeneity, I find a robust positive relationship between changes in composition-constant industry wages and industry employment. This suggests that growing industries attract less skilled individuals in a manner that biases down the estimated relationship between industry employment and wages in repeated cross-sectional data. The results imply that supply curves facing industries are elastic but upward sloping.

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  • Paul J. Devereux, 2005. "Do employers provide insurance against low frequency shocks? Industry employment and industry wages," Open Access publications 10197/320, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:oapubs:10197/320
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    File URL: http://hdl.handle.net/10197/320
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    1. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 1-25.
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    Cited by:

    1. N. Guertzgen, 2014. "Wage insurance within German firms: do institutions matter?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 177(2), pages 345-369, February.
    2. Miguel Portela & Ana Rute Cardoso, 2005. "The provision of wage insurance by the firm: evidence from a longitudinal matched employer-employee dataset," NIPE Working Papers 17/2005, NIPE - Universidade do Minho.
    3. Ana Rute Cardoso & Miguel Portela, 2009. "Micro Foundations for Wage Flexibility: Wage Insurance at the Firm Level," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 29-50, March.
    4. David Gray & Hanqing Qiu, 2010. "The responsiveness of industry wages to low-frequency shocks in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1221-1242, November.
    5. Kátay, Gábor, 2008. "Do firms provide wage insurance against shocks? Evidence from Hungary," Working Paper Series 964, European Central Bank.

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