 The great increase in relative wage volatility in the United StatesJulien Champagne and André Kurmann Journal of Monetary Economics, 2013, vol. 60, issue 2, 166-183 Abstract: Over the past 25 years, real average hourly wages in the United States have become substantially more volatile relative to output. Microdata from the Current Population Survey (CPS) is used to show that this increase in relative volatility is predominantly due to increases in the relative volatility of hourly wages across different groups of workers. Compositional changes of the workforce, by contrast, account for only a small fraction of the increase in relative wage volatility. Simulations with a Dynamic Stochastic General Equilibrium (DSGE) model illustrate that the observed increase in relative wage volatility is unlikely to come from changes outside of the labor market (e.g. smaller exogenous shocks or more aggressive monetary policy). By contrast, greater flexibility in wage setting due to deunionization and a shift towards performance-pay contracts as experienced by the U.S. labor market is capable of accounting for a substantial fraction of the observed increase in relative wage volatility. Greater wage flexibility also decreases the magnitude of business cycle fluctuations, suggesting an interesting new explanation for the Great Moderation. Date: 2013 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:2:p:166-183 DOI: 10.1016/j.jmoneco.2012.10.023 Access Statistics for this article Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser More articles in Journal of Monetary Economics from Elsevier |
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