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Do employers provide insurance against low frequency shocks? Industry employment and industry wages

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  • Paul J. Devereux

Abstract

I use panel data to examine whether long-term changes in industry wages are positively related to long-term changes in industry employment. Previous research using repeated cross-sectional data found no systematic relationship between these variables. Using standard fixed effects models to deal with individual heterogeneity, I find a robust positive relationship between changes in composition-constant industry wages and industry employment. This suggests that growing industries attract less skilled individuals in a manner that biases down the estimated relationship between industry employment and wages in repeated cross-sectional data. The results imply that supply curves facing industries are elastic but upward sloping.

Suggested Citation

  • Paul J. Devereux, 2005. "Do employers provide insurance against low frequency shocks? Industry employment and industry wages," Open Access publications 10197/320, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:oapubs:10197/320
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    File URL: http://hdl.handle.net/10197/320
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    References listed on IDEAS

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    1. Helwege, Jean, 1992. "Sectoral Shifts and Interindustry Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 55-84, January.
    2. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
    3. McLaughlin, Kenneth J & Bils, Mark, 2001. "Interindustry Mobility and the Cyclical Upgrading of Labor," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 94-135, January.
    4. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-677, October.
    5. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2005. "Comparative Advantage, Learning, and Sectoral Wage Determination," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 681-724, October.
    6. William J. Carrington, 1993. "Wage Losses for Displaced Workers: Is It Really the Firm That Matters?," Journal of Human Resources, University of Wisconsin Press, vol. 28(3), pages 435-462.
    7. Shaw, Kathryn L, 1989. "Wage Variability in the 1970s: Sectoral Shifts or Cyclical Sensitivi ty," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 26-36, February.
    8. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
    9. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-392, June.
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    Cited by:

    1. Kátay, Gábor, 2008. "Do firms provide wage insurance against shocks? Evidence from Hungary," Working Paper Series 964, European Central Bank.
    2. N. Guertzgen, 2014. "Wage insurance within German firms: do institutions matter?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 177(2), pages 345-369, February.
    3. Miguel Portela & Ana Rute Cardoso, 2005. "The provision of wage insurance by the firm: evidence from a longitudinal matched employer-employee dataset," NIPE Working Papers 17/2005, NIPE - Universidade do Minho.
    4. Ana Rute Cardoso & Miguel Portela, 2009. "Micro Foundations for Wage Flexibility: Wage Insurance at the Firm Level," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 29-50, March.

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    Keywords

    Industries; Wages; Employment (Economic theory);

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