Cyclical Comovements in Industrial Labor and Product Markets: Theory and Evidence

Magda Kandil and Jeffrey G Woods

Economic Inquiry, 1997, vol. 35, issue 4, 725-44

Abstract: The authors establish the theoretical connection between industrial labor and product markets within the contractual wage-rigidity new Keynesian explanation of business cycles. They estimate time-series and cross-sectional regressions for twenty-eight private two-digit (S.I.C.) industries and find that greater uncertainty is associated with upward flexibility of the nominal wage and moderates the countercyclical response of the real wage to aggregate demand shocks; an upwardly rigid nominal wage response to energy price shocks reduces the real contractionary effects of these shocks; and downwardly inflexible nominal wages are associated with downwardly rigid prices in response to productivity shocks. Copyright 1997 by Oxford University Press.

Date: 1997
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