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Real wage growth over the business cycle:contractual versus spot markets

  • Bellou, Andriana
  • Kaymak, Baris

We study the wage growth of job stayers over the business cycle, and show that wage adjustments within a job spell display significant history dependence. This is at odds with the spot market model, which implies that the wage growth of a worker within a job spell depends solely on the change in the contemporaneous economic conditions. Instead, we find that workers hired during recessions, or those who experienced unfavorable economic conditions since they were hired, receive larger wage raises during expansions, and are subject to smaller wage cuts during downswings. The change in the contemporaneous conditions, on the other hand, is not a significant determinant of wage growth. Our findings are consistent with a model of implicit insurance contracts where neither the employer nor the worker can fully commit to the contract.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30401.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:30401
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