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Real Wages over the Business Cycle: Estimating the Impact of Heterogeneity with Micro Data


  • Keane, Michael
  • Moffitt, Robert
  • Runkle, David


New evidence on the correlation between the cycle and the real wage is provided by using panel data to adjust for the aggregation cum selectivity bias that arises when those who move in and out of the work force over the cycle have systematically different unobserved permanent and transitory wage components than those who do not. The results show that selectivity bias is present, for those with high transitory wages are more likely to lose employment, and that a true, compositio n-constant real wage index moves countercyclically, but less quantitatively than previous estimates using micro data have suggested. Copyright 1988 by University of Chicago Press.

Suggested Citation

  • Keane, Michael & Moffitt, Robert & Runkle, David, 1988. "Real Wages over the Business Cycle: Estimating the Impact of Heterogeneity with Micro Data," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1232-1266, December.
  • Handle: RePEc:ucp:jpolec:v:96:y:1988:i:6:p:1232-66

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    References listed on IDEAS

    1. Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
    2. Oliver Hart, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, Oxford University Press, vol. 97(1), pages 109-138.
    3. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    4. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1985. "Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money," NBER Working Papers 1770, National Bureau of Economic Research, Inc.
    5. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-1190, December.
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