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Changes in the Cyclical Sensitivity of Wages in the United States, 1891-1987

Steven Allen ()

American Economic Review, 1992, vol. 82, issue 1, 122-40

Abstract: The conventional wisdom that nominal wages became less sensitive to the business cycle and more autocorrelated after World War II is reexamined here by considering whether these properties are artifacts of the methods used to construct prewar wage series. A replication based on these methods is more cyclically sensitive and exhibits less autocorrelation than the postwar data. Aggregation using variable instead of fixed employment weights also greatly exaggerates the cyclicality of prewar wages. These biases imply that wages are just as sensitive to the cycle today as one hundred years ago, perhaps even more so. Copyright 1992 by American Economic Association.

Date: 1992
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