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Cyclical Quality Adjustment in the Labor Market

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  • Paul J. Devereux

    () (Department of Economics, University of California)

Abstract

Various reasons have been put forward to explain the stylized fact that the wages of job starters are more procyclical than the wages of workers who don’t change jobs. I explore the theoretical and empirical basis for one such reason: firms adjust the quality of workers assigned to jobs over the business cycle. I show that there is evidence that quality adjustment is an important feature of cyclical adjustment in labor markets. New hires of any particular ability level get lower quality jobs in recessions than in booms. The results indicate that about half of the wage procyclicality of new hires can be ascribed to variation in the matches between firms and workers over the business cycle. These systematic changes in assignment imply that government policy aimed at high-skill sectors can have positive effects on low-skill individuals by increasing the probability that they upgrade occupation and industry.

Suggested Citation

  • Paul J. Devereux, 2004. "Cyclical Quality Adjustment in the Labor Market," Southern Economic Journal, Southern Economic Association, vol. 70(3), pages 600-615, January.
  • Handle: RePEc:sej:ancoec:v:70:3:y:2004:p:600-615
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    Cited by:

    1. Vincent Fromentin, 2016. "The Global Economic Crisis and Migrant Workers: The Case of the Construction Sector in Europe," International Economic Journal, Taylor & Francis Journals, vol. 30(1), pages 147-163, March.
    2. Pia M. Orrenius & Madeline Zavodny, 2011. "Immigrants’ employment outcomes over the business cycle," Staff Papers, Federal Reserve Bank of Dallas, issue Sep.
    3. Schlicht, Ekkehart, 2008. "Lohnspreizung und Effizienz," Discussion Papers in Economics 2117, University of Munich, Department of Economics.
    4. Anger, Silke, 2011. "The cyclicality of effective wages within employer–employee matches in a rigid labor market," Labour Economics, Elsevier, vol. 18(6), pages 786-797.
    5. Amparo Nagore García & Arthur van Soest, 2017. "New job matches and their stability before and during the crisis," International Journal of Manpower, Emerald Group Publishing, vol. 38(7), pages 975-995, October.
    6. Ludsteck, Johannes, 2008. "Wage cyclicality and the wage curve under the microscope," IAB Discussion Paper 200811, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    7. Ayako Kondo, 2015. "Differential effects of graduating during a recession across gender and race," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.
    8. Vincent Fromentin & Olivier Damette & Benteng Zou, 2017. "The Global Economic Crisis and The Effect of Immigrant Workers on Native-born Employment in Europe," The World Economy, Wiley Blackwell, vol. 40(6), pages 1068-1088, June.
    9. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    10. Ammermueller, Andreas & Kuckulenz, Anja & Zwick, Thomas, 2009. "Aggregate unemployment decreases individual returns to education," Economics of Education Review, Elsevier, vol. 28(2), pages 217-226, April.
    11. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," CESifo Working Paper Series 1008, CESifo Group Munich.
    12. Fraser Summerfield & Ioannis Theodossiou, 2017. "The Effects Of Macroeconomic Conditions At Graduation On Overeducation," Economic Inquiry, Western Economic Association International, vol. 55(3), pages 1370-1387, July.
    13. Pedro S. Martins & Gary Solon & Jonathan Thomas, 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," NBER Working Papers 15767, National Bureau of Economic Research, Inc.
    14. Stüber, Heiko, 2012. "Are real entry wages rigid over the business cycle? : Empirical evidence for Germany from 1977 to 2009," IAB Discussion Paper 201206, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    15. Krzysztof Kalisiak & Małgorzata Szreder & Kaja Białowąs, 2011. "Finansowy i niefinansowy zwrot z edukacji," Gospodarka Narodowa, Warsaw School of Economics, issue 9, pages 77-102.
    16. Verhaest, Dieter & Bogaert, Elene & Dereymaeker, Jeroen & Mestdagh, Laura & Baert, Stijn, 2016. "Crowding Out in the Labour Market: Do Employers Lend a Hand?," IZA Discussion Papers 9654, Institute of Labor Economics (IZA).
    17. Vincent Fromentin & Olivier Damette & Benteng Zou, 2014. "The global economic crisis and the effect of immigration on the employment of native-born workers in Europe," CREA Discussion Paper Series 14-22, Center for Research in Economic Analysis, University of Luxembourg.
    18. Ludsteck, Johannes & Haupt, Harald, 2007. "An Empirical Test of the Reder Hypothesis," Discussion Papers in Economics 1397, University of Munich, Department of Economics.

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