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The cyclicality of real wages within employer-employee matches

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  • Paul J. Devereux

Abstract

Using data from the Panel Study of Income Dynamics, the author examines the cyclicality of wages within employer-employee matches for the years 1970-91. Recent research on wage cyclicality has suggested that wages are very procyclical (tending to rise and fall with economic upturns and downturns), even for workers who remain with the same employer. The author finds, however, that the evidence for wage procyclicality within the matches he examines is rather weak except for the small group of workers who were paid by piece rate or commissions. Despite having acyclical wage rates, men who were paid hourly had earnings movements that were very procyclical. Salaries exhibited little cyclicality, but salaried workers who had income sources from bonuses, commissions, or overtime had procyclical earnings. The results suggest that the increasing prevalence of incentive-based pay will increase the procyclicality of wages within matches.

Suggested Citation

  • Paul J. Devereux, 2001. "The cyclicality of real wages within employer-employee matches," Open Access publications 10197/312, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:oapubs:10197/312
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    References listed on IDEAS

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    1. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
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    7. Nickell, Stephen & Nicolitsas, D., 1994. "Wages," LSE Research Online Documents on Economics 51644, London School of Economics and Political Science, LSE Library.
    8. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-837, September.
    9. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-368, July.
    10. McLaughlin, Kenneth J., 1994. "Rigid wages?," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 383-414, December.
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    Keywords

    Wages; Business cycles; Personnel management;

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