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Why Does the Cyclical Behavior of Real Wages Change Over Time?

  • Kevin X.D. Huang
  • Zheng Liu
  • Louis Phaneuf

The cyclical behavior of real wages has evolved from mildly countercyclical during the interwar period to modestly procyclical in the postwar era. This paper presents a general-equilibrium business-cycle model that helps explain the evolution. In the model, changes in the real wage cyclicality arise from interactions between nominal wage and price rigidities and an evolving input-output structure.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 4 (September)
Pages: 836-856

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Handle: RePEc:aea:aecrev:v:94:y:2004:i:4:p:836-856
Note: DOI: 10.1257/0002828042002552
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