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On the Cyclicality and Stability of Real Earnings

  • Hart, Robert A.

    ()

    (University of Stirling)

  • Malley, James R.

    ()

    (University of Glasgow)

We show in this paper that important insights into the cyclical behavior of wages can be gained by dividing (real) average hourly earnings into their straight-time hourly wage and overtime components. Our motivation is based on the idea of employment-contingent contracts. BLS published and unpublished statistics are used to decompose average earnings into (i) the straight-time wage rate, (ii) the ‘mark-up’ needed to achieve an overtime workers earnings rate, and (iii) the proportion of workers working overtime. Using monthly manufacturing data from 1962-1997, cyclicality measures of these components are based on contemporaneous bivariate correlations using four alternative detrending methods while stability is examined using recursive estimation and testing methods. While the wage rate is generally acyclical and unstable, the other two components are highly pro-cyclical and relatively stable.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 45.

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Length: 28 pages
Date of creation: Jun 1999
Date of revision:
Handle: RePEc:iza:izadps:dp45
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  1. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  2. Trejo, Stephen J, 1993. "Overtime Pay, Overtime Hours, and Labor Unions," Journal of Labor Economics, University of Chicago Press, vol. 11(2), pages 253-78, April.
  3. Ulrich Woitek, 1998. "A Note on the Baxter-King Filter," Working Papers 9813, Business School - Economics, University of Glasgow.
  4. 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.
  5. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  6. Paxson, Christina H & Sicherman, Nachum, 1996. "The Dynamics of Dual Job Holding and Job Mobility," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 357-93, July.
  7. Robert E. Hall & David M. Lilien, 1978. "Efficient Wage Bargains Under Uncertain Supply and Demand," NBER Working Papers 0306, National Bureau of Economic Research, Inc.
  8. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
  9. Harvey, Andrew C. & Collier, Patrick, 1977. "Testing for functional misspecification in regression analysis," Journal of Econometrics, Elsevier, vol. 6(1), pages 103-119, July.
  10. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Spanos,Aris, 1986. "Statistical Foundations of Econometric Modelling," Cambridge Books, Cambridge University Press, number 9780521269124.
  12. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
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