IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Measuring the cyclicality of real wages: how important is aggregation across industries?

  • Eric T. Swanson

There is a growing consensus among economists that real wages in the postwar U.S. have been moderately to strongly procyclical, particularly in panel data on workers. From the point of view of hiring decisions of firms, however, this conclusion may be premature or even erroneous. Whether a firm's labor demand curve is stable or shifting at business cycle frequencies should be tested with a wage that is deflated by the firm's own price of output, with appropriate controls for the prices of intermediate inputs, and with respect to the cyclical state of the firm's own industry, as opposed to the state of the aggregate economy. I find that failing to control for these factors has led to a substantial procyclical bias in previous estimates of wage cyclicality. In two-digit and four-digit level (SIC) industry data on wages, with controls for changes in worker composition, I find that a substantial majority of sectors have paid real product wages that vary inversely (i.e., countercyclically) with the state of their industry.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

File URL:
Download Restriction: no

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-52.

in new window

Date of creation: 1999
Date of revision:
Handle: RePEc:fip:fedgfe:1999-52
Contact details of provider: Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
Web page:

More information through EDIRC

Order Information: Web:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  2. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
  3. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1989. "Building Blocks of Market Clearing Business Cycle Models," NBER Working Papers 3004, National Bureau of Economic Research, Inc.
  4. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
  5. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
  6. Roger N. Waud, 1968. "Man-Hour Behavior in U.S. Manufacturing: A Neoclassical Interpretation," Journal of Political Economy, University of Chicago Press, vol. 76, pages 407.
  7. repec:oup:qjecon:v:99:y:1984:i:4:p:817-39 is not listed on IDEAS
  8. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  9. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  10. Eric T. Swanson, 1999. "Models of sectoral reallocation," Finance and Economics Discussion Series 1999-03, Board of Governors of the Federal Reserve System (U.S.).
  11. George J. Stigler & James K. Kindahl, 1970. "The Behavior of Industrial Prices," NBER Books, National Bureau of Economic Research, Inc, number stig70-1, December.
  12. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June.
  13. repec:oup:qjecon:v:109:y:1994:i:1:p:1-25 is not listed on IDEAS
  14. Ellen R. McGrattan, 1994. "A progress report on business cycle models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-16.
  15. Robert B. Barsky & Gary Solon, 1989. "Real Wages Over The Business Cycle," NBER Working Papers 2888, National Bureau of Economic Research, Inc.
  16. Marcello Estevao & Beth Anne Wilson, 1998. "Nominal wage rigidity and real wage cyclicality," Finance and Economics Discussion Series 1998-21, Board of Governors of the Federal Reserve System (U.S.).
  17. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
  18. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August.
  19. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  20. Pencavel, John & Craig, Ben, 1994. "The Empirical Performance of Orthodox Models of the Firm: Conventional Firms and Worker Cooperatives," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 718-44, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:1999-52. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.