Labor Quality and the Cyclicality of Real Wages

Haoming Liu
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Haoming Liu: University of Western Ontario, https://economics.uwo.ca/

No 9712, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: Because labor quality changes over the business cycle, the cyclicality of aggregate wages cannot reflect the true cyclical behavior of the price of labor inputs. To control for changes in labor quality, many researchers have examined the cyclical behavior of the price of labor inputs using microdata sets with mixed results. In this paper, I develop a hedonic pricing method to examine the cyclicality of real wages and implement it using the U.S. Current Population Survey (CPS) data. The flexibility of the hedonic method and the large sample size of the CPS data make it possible to replicate and reconcile the results from a number of major studies on a single data set. I find that the lower the frequency of the data, the greater is the procyclicality of real wages. This pattern has not been documented and cannot be explained by current business cycle theories.

Keywords: LABOUR MARKET; BUSINESS CYCLES; WAGES (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 1997
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