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Real Wages and Business Cycle Asymmetries

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  • Ulrich Woitek

Abstract

The cyclicality of real wages has important implications for the validity of competing business cycle theories. However, the empirical evidence on the aggregate level is inconclusive. Using a threshold vector autoregressive model for the US and Germany to condition the relationship between real wages and business fluctuations on the phase of the cycle, it is demonstrated that the inconclusive evidence is not only caused by measurement problems, estimation method and composition bias as discussed in the literature. In addition, one should also consider whether the economy is in an upswing or a downswing. In general, the evidence for countercyclical wages is stronger in Germany than for the US, but taken together there is no clear systematic pattern.

Suggested Citation

  • Ulrich Woitek, 2004. "Real Wages and Business Cycle Asymmetries," CESifo Working Paper Series 1206, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1206
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1206.pdf
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    References listed on IDEAS

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    Cited by:

    1. Cyrus Farsian, 2011. "The Fallacy of Composition Bias in the RealWage Cyclicality Puzzle," Studies in Economics 1116, School of Economics, University of Kent.
    2. Rusinova, Desislava & Lipatov, Vilen & Heinz, Frigyes Ferdinand, 2015. "How flexible are real wages in EU countries? A panel investigation," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 140-154.

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    Keywords

    threshold vector autoregressive model; real wages; business cycle;

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