WHY ARE THE WAGES OF JOB STAYERS PROCYCLICAL?

Donggyun Shin and Kwanho Shin

Macroeconomic Dynamics, 2008, vol. 12, issue 1, 1-21

Abstract: This paper explains how real wages are procyclical for those who stay with the same employer. On the basis of the Panel Study of Income Dynamics data for the period from 1974–1975 to 1990–1991, we find that the substantial wage procyclicality among job stayers is mostly accounted for by large wage adjustments during the period when the unemployment rate reaches a historical minimum level from the start of the employee's current job. This finding explains how the real wages of job stayers behave asymmetrically over the cycle and more importantly how the evidence of stayers' great wage procyclicality accords with the theoretical prediction of implicit contracts that stresses costless mobility.

Date: 2008
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Working Paper: Why Are The Wages of Job Stayers Procyclical? (2003)
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