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Reconciling the divergence in aggregate U.S. wage series

Listed author(s):
  • Julien Champagne

    (Bank of Canada)

Registered author(s):

    This paper documents the gradual divergence in trend growth and business cycle volatility of two popular aggregate hourly wage series for the U.S. economy: average hourly compensation from the Labor Productivity and Cost (LPC) program and average hourly earnings from the Current Employment Statistics (CES). While the LPC wage increased by about 70% over the past four decades and became markedly more volatile starting in the 1980s, the CES wage grew by only about 20% over the same period and experienced a large drop in volatility post-1980. We establish that the divergence between the two aggregate hourly wage series is due to the different evolution of average labor earnings. Average hours worked, by contrast, evolve very similarly. We then use labor earnings data from the Current Population Survey (CPS), the National Income and Product Accounts (NIPAs), and Piketty and Saez (2003) in an attempt to reconcile the divergence between LPC and CES labor earnings. Our analysis indicates that differences in earnings concept and population coverage can account for a large part of the divergence. Our analysis also shows that earnings differences between the CPS and the LPC can be attributed almost entirely to earnings of high-income individuals and supplements such as employer contributions to pension and health plans, which are included in the LPC but not in the CPS. This result is interesting in its own right given the widespread use of micro earnings data from the CPS in cross-sectional studies.

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    File URL: https://economicdynamics.org/meetpapers/2014/paper_718.pdf
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    Paper provided by Society for Economic Dynamics in its series 2014 Meeting Papers with number 718.

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    Date of creation: 2014
    Handle: RePEc:red:sed014:718
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
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    1. Jordi Galí & Thijs van Rens, 2008. "The vanishing procyclicality of labor productivity," Economics Working Papers 1230, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2010.
    2. Katharine G. Abraham & James R. Spletzer & Jay C. Stewart, 1998. "Divergent Trends in Alternative Wage Series," NBER Chapters,in: Labor Statistics Measurement Issues, pages 293-325 National Bureau of Economic Research, Inc.
    3. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 1-41.
    4. Shane T. Jensen & Stephen H. Shore, 2008. "Changes in the Distribution of Income Volatility," Papers 0808.1090, arXiv.org.
    5. 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.
    6. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
    7. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    8. Champagne, Julien & Kurmann, André, 2013. "The great increase in relative wage volatility in the United States," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 166-183.
    9. Peter Kuhn & Fernando Lozano, 2008. "The Expanding Workweek? Understanding Trends in Long Work Hours among U.S. Men, 1979-2006," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 311-343, 04.
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